Amazon’s food revolution
THE ambition of Jeff Bezos, the creative genius behind Amazon, has no bounds. He long has had his eye on deploying Amazon’s brilliant online platform and logistics in grocery, but after a nine-year experiment has gained only a 0.8pc share of the US fresh food space.
Now Amazon has gone in with both feet with a £10.7bn cash bid for upmarket, organic food behemoth Whole Foods Market – a deal which threatens to revolutionise grocery shopping.
It is Amazon’s biggest deal and the largest transaction ever in American grocery.
Its swoop on Whole Foods, with its 444 outlets in the US and nine or so in Britain, caused terror among grocers.
Shares in America’s biggest grocery chains plunged in double digits in New York trading and shares in Britain’s quoted chains also fell sharply.
Only a week has passed since Amazon shares temporarily passed the $1,000 (£782.56) mark, valuing it at a shade under half-a-trillion dollars. Among the hardesthit competitors as a result of the bid is retail giant Walmart, a latecomer to the food market. The Arkansas-based group competes on price and is playing catch-up as American shoppers migrate online.
In Britain, Walmart owns Asda which also has struggled of late against a resurgent Tesco and the privately owned German nofrills retailers Aldi and Lidl.
One of the big ironies of the current transaction is that Amazon began life as a price disrupter destroying large swathes of the bricks and mortar book, CD and record sellers in the US and across the world.
It will now control a supermarket chain which has prospered selling upmarket food and wine, earning it the epithet among US shoppers of ‘whole pay-check’.
Amazon is an enormously ambitious digital disrupter unafraid to take on incumbents in all manner of activities. Through Amazon Prime it has become a big player in the media market, making its own TV programmes, and it seized Jeremy Clarkson and the Top Gear team from under the noses of the BBC.
The group dominates cloud computing, has recruited tens of thousands of smaller businesses through its Marketplace and created hardware such as the Kindle reader.
Amazon also is a pioneer in the use of drones for delivery, so there must be the prospect of the weekly grocery arriving at the front door by hovering aircraft.
Bezos also has transformed the Washington Post newspaper by investing in journalism and linking its output to Facebook with its 1bn users.
WITH only a handful of stores in Britain, and a concentration in London, Amazon will find it more difficult to shake up the British grocery market.
Nevertheless, as UK booksellers learnt to their cost, it can never be underestimated.
Sainsbury already has sought to embrace the Amazon model by buying Argos in direct challenge to the American firm in non-food and in an attempt to benefit from the catalogue retailer’s logistics. Closest to the Amazon model in the UK is online grocer Ocado, which sources Waitrose products, provides warehouse and delivery services for Wm Morrison and has tied up with Marks & Spencer.
None will welcome a combination of Amazon and Whole Foods on their home turf.
The deal immediately took the shine off Tesco’s latest results.
Under Dave Lewis’s scrupulous stewardship, Tesco achieved a 2.5pc jump in samestore sales in the latest quarter despite rising inflation and a squeeze on household incomes.
Tesco embraced online shopping earlier but its model has been built around handpicking items in larger stores.
The American deal will give encouragement to critics of Tesco who opposed its £3.7bn bid for Booker, the supplier of food and tobacco to Britain’s corner stores.
At least one Tesco director – the Compass chief executive Richard Cousins – resigned because he opposed the transaction and it is thought that chairman John Allan may also have reservations.
If Tesco wanted to be a next-generation grocer it might have been better off snapping up Ocado, which could have been bought for less than half the price of Booker and deploys the latest IT and robotics.
But, once again, Amazon has changed the game.