Amazon and Whole Foods – one year on
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Amazon and Whole Foods – one year on

Just over a year ago, Ecommerce giant Amazon threw a lifeline to early-mover in the organic food space, Whole Foods. The latter company was in trouble: despite getting the head start in specialty groceries, bigger competitors had started muscling into its space, outcompeting it with economies of scale and better infrastructure. Sales were declining. Under pressure from activist investors, CEO John Mackey got in touch with Amazon, which agreed to buy Whole Foods.

Amazon’s share price has appreciated by an impressive 48% year to date

graph 1806 amazon

SOURCE: Yahoo Finance

Whole Foods was an ambitious but sensible acquisition target for Amazon. It played into CEO Jeff Bezos’ plan to invade the grocery space, and Amazon’s expertise in innovation and infrastructure could easily close the gap between Whole Foods and its competitors. A year on, how is that working out?

The first thing to notice is that Whole Food stores look different – Amazon is making its mark. The company has embraced its new brick-and-mortar empire, and products like the Echo (its virtual personal assistant home speaker) have made their way onto stands. It’s also leveraging its powerful online ecosystem to knit Whole Foods deeper into the Amazon experience. Now, you can get special discounts, and Whole Foods will even deliver your food free of charge, if you’re an Amazon Prime member.

Amazon is also taking Whole Foods national. This was always a difficult spot for Whole Foods based on its business model: the company used niche, local, produce and regional identity to stand apart from the other names in the market. How do you take something national when its point of differentiation is its locality? Amazon is the ideal partner to help it answer that question, and the process has already begun: Whole Foods has now begun centralizing purchasing for its suppliers, as well as its merchandising. Those are the first steps towards an up-scaled business model.

One of the things that is becoming more clear 12 months after the acquisition is the value of the data Amazon is able to collect and monetize. Many shoppers browse groceries online, but prefer to shop in person. Closing the gap between those two data points – what people are interested in, and what’s on the shelf in front of them – could turn out to be the ultimate weapon in Amazon’s bid to disrupt the grocery world.

If Amazon’s purchase of While Foods can be used as a spur to bring grocery shopping into the online space quicker than the market estimated, Amazon will have put itself at a huge advantage. While the big retail players will suddenly have to learn how to innovate digitally and adjust their businesses, Amazon will already have the ultimate playbook. That’s the ideal situation – and Amazon looks like it’s starting to make that happen.

Disclosure

Dominion holds Amazon in its Global Trends Ecommerce Fund.


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