What Amazon buying Whole Foods could mean for small businesses
It’s taken down bookstores and shopping malls, but it’s hungry for more. Amazon’s latest conquest? Supermarkets. How will this seismic shift in the grocery industry affect independent and regional grocers?
The online retail giant announced Friday that it is purchasing Whole Foods for $13.4 billion. Amazon’s entry into the $800 billion grocery business could mean a total transformation of the industry.
In hot water
Whole Foods, under fire from investors due to low stock prices, has been taking strides to liberate itself from a leadership team CEO John Mackey irreverently referred to as “greedy bastards.”
In the last month, the upscale grocery chain has replaced several board members and implemented plans to cut costs and improve operations.
Under Amazon’s ownership, Whole Foods has a shot not only at recovery, but at industry dominance.
Whole Foods is known for its organic, fresh foods (and high prices). Amazon, known for its technological expertise and convenience is already killing it in the grocery biz. Snapping up Whole Foods will make both companies stronger–Amazon gets that whole locally grown vibe, Whole Foods gets that money and tech power.
Not to mention this deal expands Amazon’s brick-and-mortar presence.
Amazon’s grocery delivery service has been limited by its scarce number of physical stores–it currently has only a few AmazonFresh locations in Seattle.
Access to freshness
With Whole Foods, Amazon will own more than 460 stores in the U.S., Canada and Britain, bringing them within 90 minutes of as many people as possible. This enables a new era of fresh grocery shopping, where shoppers everywhere can order ahead and pick up at a nearby store, or have their fresh groceries delivered to them within the hour.
Shipping fresh groceries to the home has been proven successful by companies like Blue Apron and HelloFresh.
Amazon has the resources and experience to do what these meal-kit delivery services do on a much larger scale, much more efficiently. Can they pull it off? The general consensus seems to be yes: after Amazon announced the deal, their shares soared while competing retailers like Target, Walmart and Costco experienced substantial drops.
Why it could be bad news
Independent grocers already have to compete with large chains like Walmart, Target and Costco, and recent mergers like Albertsons-Safeway and Ahold-Delhaize joined more than 4000 grocery stores, giving these small stores even more giants to battle. With the Amazon-Whole Foods monster, these traditional grocers now join the many brick-and-mortar retailers who have been struggling to compete with Amazon for years.
Another potential threat is Instacart, the grocery delivery startup that Whole Foods currently owns a small percentage of.
According to an insider, Instacart intends to buy back the small percentage Whole Foods owns, making the startup a target for acquisition, possibly from Walmart, Target or Costco. This could lead to more consolidation within the grocery industry, pushing smaller names out and increasing barrier to entry.
Why it could be good news
With 52 million Americans currently grocery shopping online, other grocery chains will likely up their digital transformation efforts in order to compete. Who will they turn to for help? How about Amazon’s top digital rival?
Back in 2013, Google made a move against Amazon with Google Shopping Express, partnering with several grocers including Costco, Target, and none other than Whole Foods.
With Amazon ownership, it’s likely Whole Foods will remove itself from Google deliveries. This will leave Google in search of more foods store partnerships, spelling opportunity for smaller grocers with little online presence.
Should Whole Foods transfer its delivery services, Google may turn to smaller grocery stores to make up for that lost inventory.
With Amazon commanding all the mega grocery chains, Google could snag the niche market of local businesses.
When it comes to fresh produce, these little guys often do it best, and when it comes to digital, well, Google knows a thing or two.
While the exact future of the grocery industry remains uncertain, one thing is for sure: eventually, long checkout lines with overflowing carts will be as obsolete as horse-drawn carriages.
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