Those of us in the industry have known for a while that Whole Foods has been pressured to sell by its activist investor Jana Partners and mutual-fund manager Neuberger Berman, and rumors of potential deals with everyone from Kroger to Albertsons have been bandied about. However, Amazon’s $13.7 billion acquisition was a surprise to some.
But maybe it shouldn’t have been. There has been plenty of speculation that if Amazon really wanted to make a presence in the grocery space, it would need to do something major in the brick-and-mortar space. Still, no one seemed to put 2 and 2 together to forecast this deal.
The marriage of Amazon and Whole Foods will have major implications across the entire grocery and food industry. Amazon was on a huge growth curve prior to the acquisition, now it will leverage its distribution and data against the entire food industry, not just the healthy and organic categories.
In the wake of the announcement, here are five things people will be talking about this week.
1. Amazon is now a major player in grocery. This acquisition was not just a step to further its natural food and organic offerings, but a way to cement a presence in the brick-and-mortar grocery space. This was a savvy way to do that and it’s expected that Whole Foods stores will be retrofitted to allow shoppers to buy online and pickup at their local store—a solution to the “last mile” expense of home delivery.
2. The effect on grocery retailers globally has been hit hard. As soon as the acquisition was announced, grocery retailer shares around the world were getting hammered on the stock market. Investors looking into the crystal ball now see more and more of the home delivery or the pickup version of food swinging to Amazon more quickly than anyone thought it would before this deal. That’s business that comes right out of traditional grocery retailers.
3. Americans today crave two things—convenience and experience. And as the millennial generation continues to grow its buying power, experience becomes even more important. This acquisition allows things to happen on both sides of that equation. Amazon personifies convenience and it will be able to bring that benefit to the items most consumers really don’t want to shop for—those that are chores. Through a subscription plan, click and collect or home delivery, Amazon can increase the number of items available through that model. As for experience, consumers are looking for an engaging experience within the grocery format—be it a cheese tasting, wine pairing or cooking class. Amazon has now bought into more than 400 locations where it can start to bring this experience to life.
4. This is a game-changer for competitors. Walmart is empowered to do whatever it can to win. Walmart/Jet.com will be the wild card to compete directly against Amazon/Whole Foods. The company has over 4,000 stores compared to around 400 for Amazon, and that’s a big advantage if Walmart can move quickly and take advantage of the “last mile” and getting those products from the store to consumers’ homes. Walmart announced recently they would ask some employees to deliver items on their drive home from work—a pretty dramatic idea. If you look at the results of Walmart.com in the last several quarters, they are driving increased revenue and getting a lot of growth on its ecommerce platform, especially in food.
5. Convenience, cheaper prices and improved access to products not available on store shelves will drive millennials to shop for CPG products online, something that Amazon is counting on. Food and CPG manufacturers will now need to work more closely with Amazon and leverage their assets, including product innovation, sales/marketing, loyal customers, owned media, etc., and partner with all retailers in their initiatives to drive compelling shopping experience.