Commentary

Implications For CPG In Amazon's Impending Whole Foods Acquisition

Whoa, did you hear Amazon might buy Whole Foods?! 

The answer to that dry, sarcastic, and pseudo-rhetorical question is yes, you most likely have. 

With that out of the way, you’ve probably seen a barrage of reaction from outlets of all types, as the potential acquisition impacts everything from Wall Street to Silicon Valley to a farmer in Indiana to your mom, who shops at Kroger. Assuming the deal goes through (pending Walmart doesn’t outbid Amazon) and with our focus on CPG, here are a few implications that piqued our interest. 

Amazon will now be a legitimate player in fresh. It’s human to be distrustful of the things we can’t see, especially if we’re shelling out money for them. In Amazon’s case, with Whole Foods’ name attached to orders, customers no longer need to take a leap of faith when purchasing fresh or perishables online without their ability to inspect the items. CPG brands, especially those in Food and Beverage, will need to ramp up their digital communications on Amazon’s platforms and find better ways to cross-promote with fresh

One other thing to question that may initially fly under the radar is that if Amazon is successful in pushing and expanding Whole Foods sales (and they probably will be), what will the potential consequences look like for their suppliers, i.e., the local farmers who are the backbone of what Whole Foods stands for?

Hello, penetration. Whole Foods is currently shopped by only 9% of U.S. households, and Amazon provides an incredible opportunity to expand that reach. It’s not a secret that Whole Foods was having difficulty adopting efficient and advantageous online solutions to its repertoire, and naturally, the logistics and scale Amazon commands immediately deliver a dramatic increase in visibility and attainability for the grocer.

It will take some time for new markets to catch on, but if tech and ecommerce are seen as the future of this industry, both Amazon and Whole Foods have a major early advantage among competing retail channels. 

It’s full steam ahead toward brinksmanship. One glaring implication in this potential transaction is how it affects Walmart and its customer base. Both retailers (Amazon and Walmart) have not so subtly amassed very specific assets in an effort to best the other in their quests for world domination, as evidenced by Walmart’s purchase of Jet.com, Amazon’s launch of brick-and-mortar, and this current negotiation.

The purchase of Whole Foods presents the largest piece of ammunition to date, signaling, at least for grocery, that Walmart will need to improve its digital capabilities, and it will need to do so quickly. Amazon’s ability to scale, cut costs, and provide convenience delivers an immediate challenge to Walmart’s promise of “Save Money. Live Better,” especially as we move forward into an ecommerce-heavy future.
While Walmart shoppers aren’t typical Whole Foods customers, the level of convenience Amazon can provide may begin to sway busy families, particularly those who have yet to be exposed to Whole Foods’ offerings. 

Private label should get a little more public.  Amazon, which had previously struggled to break through with its own private label, will likely make a strong push with Whole Foods’ 365 brand, as it’s both a recognizable and established entity that can win with an already loyal customer base.

Potentially more important, though, is the reach now afforded to a brand like 365. Amazon’s digital presence provides a market space where the brand can directly compete with the CPGs not present in Whole Foods’ retail locations and also an opportunity to potentially begin converting price-sensitive shoppers who may think of Whole Foods as too expensive.

It should be interesting to see how the partnerships already in place between Amazon and the CPG brands it sells will evolve with regard to placements, priority, and communication.

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