By buying Whole Foods, online retailer Amazon is betting on changing how we think about and shop for food. It is the e-commerce giant's first big step into traditional brick-and-mortar retail.
"Alexa, buy Whole Foods." This is how Wall Street enjoyed imagining Jeff Bezos, CEO of Amazon, making the $13.7 billion (12.2 billion euros) deal that shook up the American economy. On Friday, June 16, one of the world's biggest retailers, Amazon, purchased America's largest organic grocery store chain, Whole Foods, leading to equal parts anxiety, celebration and cajoling.
But not everyone is laughing at Amazon's bold move to secure a future within the highly combative $800 billion dollar grocery market. Competitors like Walmart, Target and Kroger saw their stocks nosedive as both Amazon and Whole Foods topped the charts. While Whole Foods may not be familiar in Europe, the acquisition signals a major shift for the grocery sector.
Amazon is finally entering an industry it has been eying since 2007. The move also means Whole Foods was saved from a lengthy period of stagnation. With 456 locations in 43 states, Whole Foods is known for being both expensive - some shoppers would say overpriced - and a source of quality organic goods. Whole Foods represents a consumer segment that is both loyal and cash-rich with a high disposable income. Amazon is not much different.
Know your customer
"Amazon Prime isn't focused on all Americans; it's focused on a certain income, a certain amount of GDP density," said UBS analyst Eric Sheridan in an interview. "It is a $95,000 plus per year annual income household, highly concentrated in urban and suburban areas."
This demographic could prove to be a secure control group for Amazon to experiment with, and the grocery market a safe sector to dabble in. Americans spend around 7 percent of their income on groceries. It is a market that remains stable even in times of economic stress as consumers will always need to buy food, making it a steady market to invest in.
Although Amazon was once associated only with books, it is now, among other things, a data behemoth that has been collecting, analyzing and turning the seemingly random choices of what you buy and how you buy into algorithms that predict your choices, desires and even what price customers are willing to pay.
Bezos is so obsessed with these choices that in 2013 Amazon patented "anticipatory shipping," a system designed to predict what buyers will buy before they have bought it, and then ship the item to their neighborhood. By acquiring a major retailer, Amazon now has access to the real time choices of shoppers, and all that this could reveal.
"Amazon sees an opportunity to disrupt the brick-and-mortar world. They see that 'traditional' retail has been too traditional. Focused on occasional renovation with very little true innovation," said Larry Light, CEO of the marketing consulting company Arcature. "Amazon will apply its superior technology and information management systems to provide superior, personalized service with better selection, convenience and lower prices. This will threaten the 'traditional' retailer who does not have access to Amazon's systems, power and scale."
Not taking it easy
Bezos was quoted at a recent shareholders meeting as saying, "We can't rest on our laurels." For the head of one of the biggest companies in the world, this seems a bit dramatic. Yet it is this obsessive, hardworking attitude that brings us to today. Bezos was never above buying his way to the front of the line.
Long ago, Amazon began a fight with literature. The company, then not yet a household name, fought tooth and nail with Barnes & Noble, toppled book giant Borders and put a plethora of independent bookstores out of business.
Then it went into cloud computing and with Amazon AWS and the crowdsourcing Amazon Mechanical Turk, gained control over a large segment of internet infrastructure.
Then came the Amazon Kindle. Then the streaming of Amazon Music and Amazon Video. Then AmazonFresh. Amazon Echo. Amazon Underground. And, of course, Amazon Prime. You get the point.
Amazon has played such a disruptive and domineering force in every sector it has entered that an acquisition this grand means big change for food as we know it, making it no surprise that even European grocers saw their stocks fall after the purchase announcement. Many are bracing to see how they will be impacted - suspecting it is not a question of if, but a question of when.