JO
@Johnhwang
10 points

John Hwang

Last activity 4 years ago

Signed up 4 years ago

Why is Amazon buying Whole Foods?

NI Nicolehorwitz asked on 10 April 2020, 17:23
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