Amazon buys Whole Foods Market
By Russell Goldman, Mindshare — June, 2017
Amazon is acquiring upscale, organic grocery chain, Whole Foods Market, for $13.7Bn. Whole Foods currently operates two retail formats (premium Whole Foods Market and lower-cost 365 by Whole Foods) with 460 stores across the United States, Canada, and the United Kingdom.
Details and Implications
If the deal passes then Amazon, which accounts for nearly half of all online retail sales in the US, will see an immediate six-fold boost in its share of the grocery market as a result. Although the company’s total share of that market will remain relatively small (1.4%), stock prices of competing retailers Walmart, Kroger, Costco etc. were all down on the prospect that Amazon will leverage a huge national market of consumers and its prowess in supply chain management and innovation to dominate the market over the long-term.
Over the past few years, Amazon has been aggressively testing strategies to appeal to local bricks and mortar shoppers. The company is expanding its chain of physical bookstores and has expanded its online 1-hour delivery business, Prime Now, to 20+ markets. Amazon Fresh and Amazon Pantry, which deliver fresh food and pantry items purchased online, are also now available in 35 markets. Earlier this year, the company launched AmazonGo, a tech-forward, bricks and mortar grocery store that detects users placing items in their shopping cart. No check-out needed.
Although the company now has a significant retail footprint, the opportunity in the $700 to $800 billion dollar grocery market may still be online. Grocery purchases today are significantly under-represented as a portion of online sales compared to other categories. According to a 2016 e-marketer report, just 22% of grocery shoppers purchase groceries digitally today. Amazon and third party online retailers comprise just % 17 of that market. One limitation, until now, may have been supply chain economics. With the acquisition of 460 Whole Foods stores, fresh groceries, pantry products, and in some states, alcohol, are now just a click away and deliverable, likely within a 30 mile radius. With stores doubling as shipping warehouses and cooling facilities for groceries, Amazon will likely expand Prime Now, Amazon Fresh and Pantry to customers across the US.
Shop+, Mindshare’s specialist retail media practice, believes that although it’s unlikely that much will change in the short term, CPG brands may one day track media investment returns with more complete (online-offline) media attribution than currently enjoyed. However, the merger may also produce new challenges. Brands with presence on Amazon should assume that Whole Foods’ 365 brand will very quickly begin to compete for digital shelf-space on Amazon.com and will do so at lower prices. It’s also likely that these products will become the default Amazon’s choice products in the grocery category, as has been the case with other Amazon private label products.
Marketers with an eye on Amazon should take care to manage their product portfolio on Amazon, ensuring that their product detail pages focus on getting SEO right, are outfitted with up-to-date images, and map towards Amazon A+ content. Brands should also not overlook new media opportunities in voice-shopping, such as Alexa Sponsored Ads, and Alexa skill development to stay top of mind with Amazon shoppers, to cement category leadership, and to defend their digital shelf.
Combined, Amazon and Whole Foods Market will hold less than 2% of the national US market, but will provide new opportunities for Amazon to expand its Prime Now, Fresh and Pantry Platforms. The deal has also accelerated Amazon’s ownership of higher-margin, private label products, under the 365 label, which may impact branded product shelf position on Amazon.com and highlights the need for brands to manage their Amazon presence with rigor and diligence.
Amazon to Buy Whole Foods for $13.4 Billion
(The New York Times
) | Amazon's Whole Foods Buy Is Just the Beginning