OK, I guess that I had a premeditation moment in early May. Posting a blog article suggesting that Amazon should purchase one of the cable shopping channels and add it to its retail portfolio. I was “close” :-).
Think about this … probably for the first time in its history … the retail grocery environment is experiencing a seismic shift affecting its financial and competitive structure. Competition from Wal-Mart, Target, warehouse clubs … this competition has forced the price compression for grocery products. Now Amazon!
Is the major disruptive force in retailing (Amazon) now joining the ranks of the brick-and-mortar retail model that they disrupted?
A few weeks ago, Amazon has agreed to purchase Whole Foods for $13.4B. Not only very ambitious, but suggests that Amazon is venturing out of its online model. Especially on the heels of suspending its Amazon Go store model (read previous article).
Whole Foods Situation
Some are suggesting that this acquisition was to reduce the pressure on the performance of Whole Food’s stock price. Impatient shareholders have made some noise. Recently, Whole Foods has implemented several changes to its corporate structure and leadership. A new CFO. An overhaul and restructure of its board. It’s founder, John Mackey, returned as the chief executive to provide leadership and re-boot its success.
In the last few years, it is clear that Amazon is forging its strategy to expand beyond its “traditional” online sales channel. The expansion of its strategies are …
- Mall Pop-Up Stores. The goal was to open approximately 100 small (300 to 500 square feet) retail stores located in mall concourses; the kiosk concept. This strategy appears to target foot traffic to reach customers with its new hardware devices (Echo) as well as connecting the online and retail sales channels. Currently, Amazon has opened 32 stores in 15 states. Reviewing their website on these stores, it is a demonstration model for many of their hardware products. The “touch and feel” concept in retailing.
- Amazon Fresh. After its 2007-08 beta roll-out in Washington, this new delivery service model has been implemented in 15 cities; four of which are international since 2013. Implemented as a monthly subscription service, it provides local delivery service of grocery items thought its platform. The “last mile” concept.
- Grocery Stores. Amazon began a strategy to open 20 store pilot program through 2018 in specific metropolitan areas such as Seattle, Las Vegas, New York and Miami. Their leadership believes that the grocery industry can support as many as 2,000 additional stores.
Does Amazon have a new retailing strategy … based on these two decisions? Hmm. Let’s consider it.
Some Points on the Acquisition
When analyzing the Whole Foods acquisition, several points should be considered:
Market Channels. A large percentage of sales transactions are still completed offline. However, having said that, in 2016, nearly half of all online sales for Americans was captured by Amazon. Clearly, the Bezos’ strategy and checkbook (or credit card) has clearly changed that.
Last Mile Concept. The definition of the movement of goods from a distribution center to its final destination. The last “leg” of its journey is the “last mile” before it arrives on the customer’s doorstep. Now read further …
Logistics and Distribution Dominance. A fact that many may not have considered … Whole Foods has about 460 stores (worldwide) and Amazon operates about 100 distribution centers. Viewing every Whole Foods store as a distribution center … now Amazon has 560 distribution centers. A powerful number of outlets. But still less than Kroger (2,778), Albertsons (2,206) and Publix (1,144).
Demonstration Store Concept. Some products have a higher sale rate when they are demonstrated. Whether it be in a trade show, infomercial or showroom. Apple mastered the concept of technology through the Apple retail stores. The “touch and feel” concept.
Now that you have been teased with the appetizer …. there are additional analysis and final thoughts revealed in the next part of this article.