Amazon has an appetite for industry disruption

Whole Foods purchase is latest change to retail, writes Sylvain Charlebois.

For most of us, to see Whole Foods being acquired is not shocking since the takeover was rumoured for months. But to see mammoth-sized Amazon, with its large revenues and small profits, make the biggest deal in its history may be surprising for some. This acquisition may look odd, but Amazon acquiring troubled Whole Foods is more than timely for both companies.

One thing, though, should be made clear: Amazon is positioning itself to be the most powerful retailer in the world, and it cannot achieve this goal without food. After all, food is a $700-billion sector in the U.S., and almost $120 billion in Canada. Most importantly, selling food is another way for them to attract and retain customers, especially if tied to the Amazon Prime subscription service. Purchasing Whole Foods is a quick way to build a high-margin business in the food retail industry.

Amazon is known for its low, affordable prices and quick, efficient execution. In contrast, Whole Foods is intimidating to customers seeking affordable prices: they have a strong brand, but also high prices. Amazon’s logistics and extensive adoption of automation and technology can make Whole Foods more economically accessible.

More selection, lower prices and delivery accuracy will be the pillars on which to build a successful acquisition. With these, plus the Whole Foods brand, prime locations, and established supply chains of high-quality organic products, Amazon can make Whole Foods work again.

Amazon is also known for being disruptive by nature, across varied markets. It provides the world’s largest cloud infrastructure, their television shows have won 11 Emmys in two years, they are a global leader in tablet sales (behind only Apple and Samsung), their work in artificial intelligence is competitive with Google and IBM, and they operate the world’s mostwatched live video streaming service (Twitch). Amazon is a technology company as much as it’s a retailer, and their capacity to drive digital transformation has led to their e-commerce dominance.

This capacity is evident in their concept for how brick-and-mortar retail stores should work, Amazon Go. The prototype version, now open in Seattle, allows consumers to walk in a store, pick food products, and leave. Behind-the-scenes, Amazon uses in-store sensors, smart phones, data science, and their deep understanding of consumers to track purchases and charge your credit card. For a growing number of consumers, waiting in line to give a retailer money no longer works in the 21st century. While most grocers try to figure out what to do with the immense amount of data available to them, Amazon generates even more data and uses it to adapt to a shifting clientele.

Essentially, Amazon, Walmart and Costco are doing to the grocery sector what Apple did to the music business almost 20 years ago. The music industry resisted change, even as consumers figured out how to download music for free, illegally. That’s when Apple came in with revolutionary iPods, and the iTunes Music Store for convenient, legal access to music. Today, more songs are sold each year than ever, but the music industry must share that revenue. Apple came in with its own rules, dictating a new regime to an old guard in a completely different sector, and has reaped the rewards.

Amazon killed the bookstore, and its next prey could be the food store. The threat from Amazon is real and things will change quickly. Canadian food companies are still trying to build their omnichannel, harmonizing the bricks and mortar approach with their virtual, online space. Most are barely in the online game (the average rating of Canadian grocers’ iPhone apps is 2 out of 5).

Amazon’s size and reach gives it the ability to beat most competitors on price. And since millennials have a long-standing relationship with online shopping, such a competitive advantage is key.

Whole Foods is now owned by a company that did not exist 25 years ago, and that prioritizes growth and evolution over profit. This is a whole new world. With a $13-billion takeover, Amazon is clearly making a statement.