Amazon has released some of the details on changes to Whole Foods and how they’re going to integrate their e-commerce business with this new physical asset. And if retailers were disturbed by the initial news of Amazon’s acquisition of Whole Foods, they should be in scramble mode now, with the details that are coming out and the possibility of more. While grocers will feel the most immediate disruption, all retailers will need to take notice, as this is a model that could repeat itself across other segments as Amazon continues to expand its footprint.
Changes to Expect at Whole Foods
Whole Foods plans to offer lower prices on a selection of best-selling staples across its stores. The company didn’t say the amount by which prices will fall or specify the number of products affected, but they did mention Whole Trade bananas, organic avocados, organic large brown eggs, organic responsibly farmed salmon and tilapia, organic baby kale and baby lettuce, animal welfare-rated 85 percent lean ground beef, creamy and crunchy almond butter, organic Gala and Fuji apples, organic rotisserie chicken, 365 Everyday Value organic butter and much more.
After technical integration work is complete, Amazon Prime will become Whole Foods’ customer rewards program, providing Prime members with special savings and other in-store benefits. And, Whole Foods’ private label products, including 365 Everyday Value, Whole Foods Market, Whole Paws and Whole Catch, will be available through Amazon.com, AmazonFresh, Prime Pantry and Prime Now. Additionally, Amazon Lockers will be available in select Whole Foods stores so customers can have products shipped from Amazon to their local Whole Foods store for pick-up or send returns back to Amazon during a trip to the store.
The Disruption to the Retail Industry
Based on these changes, I see four disruptions to the retail industry, which include:
- Pricing: As Amazon makes Whole Foods more competitive in pricing, it’ll disrupt what has become a growing segment for their competitors (Fresh, organic, local, gourmet) who have taken market share from Whole Foods and have continued to expand out their offerings. It also means further erosion of already thin margins in an environment of price deflation. The message beyond grocery is to expect tighter margins as pricing becomes more competitive in anticipation of Amazon.
- Technology: Introduction of technology driven convenience and a differentiated shopping experience will put pressure on competitors and retailers to keep up, driving quicker adoption of The Internet of Things (IOT) and digital strategies. This will force retailers to increase their technology and store renovation spends.
- Online: Amazon will find innovative ways to bring together their new physical asset with their market leading online presence. With US click and collect volumes at less than 3 percent currently, the stage is set for Amazon and Whole Foods to make a major change in how online has been viewed in grocery. Amazon’s Dash Wand, Dash Buttons and Echo could become major elements of a combined digital and physical strategy. Due to this, we should see a move to expand click and collect capabilities by competitors. The creation of Amazon pick-up and returns locations will also be significant, as more customers are moving to “buy online return to store” as their preferred method for handling returns, and also expands Whole Foods’ appeal to Amazon shoppers.
- Mergers/Acquisitions/Closings: Pricing, technology and online presence will all put pressure on grocers to achieve scale and efficiency. Smaller players that can’t define a niche will become targets, as will larger players who can’t quickly change to the new reality in grocery. All they need to do is look at the changing face of apparel, which has seen Amazon go from a small player selling via FBA five years ago, to surpass Macy’s as the largest apparel retailer by the end of this year. We can’t assume this is will be the only grocery/retail acquisition for Amazon.
While the immediate focus is grocery driven, the potential impact of an “Amazon Store” in a retailers backyard has to be alarming. Now is the time for retailers to expand and challenge their thinking and recognize that Amazon may target them next.
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