Why is Amazon buying Whole Foods? The opportunity of online grocery [Podcast]

But the Whole Foods deal is the start of something new. A union could boost the ambitions of both.

Whole Foods is a United States chain of 461 grocery supermarkets (440 in the USA, 12 in Canada and 9 in the UK), focusing on organic and natural products. Leaping to mind are “Walmart’s worst nightmare” followed by “this changes everything”, the latter effective immediately in natural and organic foods retailing and, longer-term, potentially with regard to all grocery, not just in the USA but worldwide, notes David Lummis, market research analyst with Packaged Facts. The two companies have not yet detailed how their proposed union might change the experience for customers.

Wal-Mart had been tipped as a potential bidder for Whole Foods by retail analysts, although Hitt previously called reports that Wal-Mart might put in a rival offer “false and baseless”.

There are rumblings in legal and business circles that Amazon could potentially engage in so-called predatory pricing practices as it enters new markets or buys companies.

Real estate developers and investors are about to get busy thanks to Amazon’s acquisition of Whole Foods. The same is true of its cloud-computing power, which supports not just Amazon’s own business but legions of other firms. Lest be accused of sloth, four days later Amazon announced a new service to let shoppers try clothes at home, for no fee, then return those they don’t like.

It is all too tempting to see this acquisition as another step in the war between Amazon and Walmart: the world’s largest retailer buys one eCommerce company after another to catch up to Amazon online.

This may include leveraging Amazon Prime membership for online orders when there is limited same-day delivery or store pick up.

Whole Foods itself isn’t that big, with fewer than 500 stores nationwide. Walmart has about 4,700 US locations, with plans to offer curbside grocery pickup at 1,100 by the end of this year.

Finally, Costco shoppers tend to be middle and upper middle class customers, which means they are not only looking for a good price, but also a place that offers them a lot of options.

And in turn, the company could revive its recently stalled ambitions to expand to 1,200 US stores.

Like Walmart, Kroger has been competing aggressively in natural and organic foods, having recently made a giant leap with its phenomenally successful Simple Truth store brand.

Of course, a union with Amazon could hurt Whole Foods’ image on food quality.

Mark Toro, managing partner for developer North American Properties in Atlanta, called the Whole Foods deal “a validation of bricks and mortar retail”.

Another big issue for Whole Foods is that more than 65 percent of its sales are perishable foods. They may take over the world all the same – and, in the process, probably usher in big changes to large swathes of the economy, affecting everything from labour to urban planning – but they’ll do it in ways we won’t be able to predict now. While Forrest doesn’t shop exclusively at Whole Foods, he said he makes it a point to get items like vegetables and meats from the chain.

Amazon’s acquisition of Whole Foods in the USA increases the likelihood that the grocery market is on the list of targets when it launches in Australia. Furthermore, there is a great opportunity for Amazon to cross-sell to the Whole Foods customers more frequently and with greater ease as a result of this acquisition.

This early lead, cemented by densely populated urban areas and cheap labor, could be key as retailers and tech firms race to boost margins on low-priced consumer goods by reinventing supply chains with big data analytics.

“It was truly love at first sight”, said Mackey.

Additionally, Galloway expects Amazon to supplant Apple as the top tech hardware innovator via its Alexa voice platform. There may not be a huge overlap between its own store network and that of Whole Foods, but every supermarket chain faces extinction with Bezos’ omnichannel approach.

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