Why is Amazon buying Whole Foods?

NI Nicolehorwitz asked on 10 April 2020, 17:23
3 answers / 1120 views / 8 votes
DA
Amazon will launch grocery store as alternative to Whole Foods. The company asured plans for a new store format when job openings were posted Monday. At an Amazon Go store in Manhattan. The store won't be using the company's Amazon Go technology this allows customers to check out with no waiting in line.
DA
Amazon will launch grocery store as alternative to Whole Foods. The company asured plans for a new store format when job openings were posted Monday. At an Amazon Go store in Manhattan. The store won't be using the company's Amazon Go technology this allows customers to check out with no waiting in line.
JO

Sometimes, the best defense is offense.

Everything Amazon does is to make the Flywheel spin faster.

By buying Whole Foods, Amazon nominally gets:

  • 431 stores in prime retail space in affluent areas, nationwide, for just ~ $32 million per store
  • Whole Food’s relationship with local and nationwide suppliers of organic, fresh produce
  • Brand equity of Whole Foods with middle, upper-middle, and upper class consumers
  • Nationwide distribution, fulfillment center network optimized for groceries
  • Staff experienced in running high end groceries
  • … and other valuables in the balance sheet

But the above gets you to spin the Amazon Flywheel even faster:

  • Faster Delivery: Near-instant expansion of Amazon Fresh and Prime Now - if Amazon chooses so. They can leverage the local FC network that Whole Foods already has.
  • Better Selection: Whole Foods’ unique and exclusive supplier and vendor network, now available on iOS and Android
  • Lower Prices: Apply Amazon’s technology investments in checkout experience (e.g. Amazon Go) onto lagging brick and mortar experiences.

This works because of the following factors:

  • The significant demographic overlap between Whole Foods shoppers and Amazon Prime members
  • Amazon’s desire to build businesses on top of on-demand, 1 day delivery supply chain (Amazon Fresh, Amazon Prime)
  • Amazon’s efforts in applying technology innovations to improve on and offline shopping experiences, and bettering grocery margins
  • Offensive and defensive move against local and regional grocery delivery aggregators as well as traditional brick and mortar players trying to go online

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