When Amazon bought out Whole Foods in the summer of 2017 for $13.7 billion, some were in shock, some were left quaking in their boots and some were simply asking why.
To the more long-term thinking strategists, it made perfect sense. The food industry is valued at $1.5T making food overall an important and attractive market. If consumers turn to Amazon for groceries, Amazon will incentivise those customers to turn to Amazon for apparel, shoes, home furnishings, furniture, media, electronics, books, and other products and services and Amazon will become an integral part of the consumer’s existence.
However, one year on, Amazon still faces some big changes and challenges to turn the small-ish scale supermarket chain into something that can up-route it’s bigger competitors. Here’s a look at some of the hurdles it will have to jump as 2019 rolls in:
- The Whole Foods founder, John Mackey, is still in position as CEO. It will be very hard to make dramatic changes with him in place.
- They have kept the name of Whole Foods which continues to have a mixed reputation with consumers. It typically attracted high-end consumers with expensive tastes. A name that links to Amazon might associate it more closely with innovation and value.
- There are many Whole Foods style products and not a mix of big brands and own label items that help other retailers get ahead.
- Online retail is one thing. Running a successful, physical grocery business is something entirely different and Amazon will not be able to rely on it’s current expertise so heavily.
- Walmart, Kroger, and Target have increased investment in technology, stores and last mile delivery, and each has an advantage over Amazon because they have more stores
- Amazon lacks purchasing power for groceries even with the acquisition of WholeFoods.
- Lidl and Aldi are the winning the value-end of the market and have aggressive expansion plans. Even Amazon may struggle to come up with a format and strategy to beat them.
- Kroger is by far one of the most innovative grocery retailers in terms of designing in-store technologies and has an in-house lab developing shelf cameras and scanning.
Whilst their is a tough journey for Amazon ahead, making some people question if they’ve gone a step too far, it would be naive to label the acquisition as a mistake.
With less than 1% market share, Amazon was dismissed by grocery executives as being a threat. Amazon acquiring Whole Foods forced grocery executives to realize their perception of Amazon was wrong. As an article in Forbes once outlined, Amazon is playing an infinite game and we can’t expect to see a big change in the short term. Best to take a rain check for now and come back in 10 years time.