Amazon’s recent purchase of Whole Foods for $13.7 billion has broadened the growing frontier of technology and food companies, sending ripples throughout the grocery, grocery tech, and retail sectors. Whole Foods, their activist investor Jana Partners, and founder Jeff Bezos (now the world’s second richest man as a result of the acquisition) were obvious winners along with Amazon, while grocery store chains like Supervalu and Kroger, along with mega-retailers Wal-Mart, Target, and Costco, all saw declines in stock prices and value as a result. The Whole Foods acquisition has created increased uncertainty for rising star, Instacart (whom Whole Foods is currently an investor and partner) along with a handful of other regional grocery tech start-ups. Blue Apron, Sunbasket, Hello Fresh and similar companies face potential threats if Amazon decides to focus its substantial online prowess and newly acquired grocery and distribution resources in the direction of the burgeoning meal kit delivery segment. Ultimately, the big winners should be consumers who benefit in the long run from more available and affordable groceries along with an improved customer experience.
Whatever the impact, there’s no denying this acquisition will impact the landscape of traditional brick and mortar grocery shopping for both retailers and consumers for years to come. People aren’t shopping the way they used to even five years ago, and much of that can be attributed to Amazon’s presence and influence. Spending on Amazon accounted for 43 percent of all online revenue in the U.S. in the last year. Over the last 10 years, big box retailers like Sears, JC Penney, Kohls, Macy’s, and Best Buy have experienced declines in market value ranging between 54 and six percent, while Amazon has seen a 1,934 percent increase.
The recent Whole Foods acquisition means stores like Target and Wal-Mart will now have to fight even harder to earn their already razor thin margins on their grocery sales, which are often used to bring in foot traffic and drive sales for higher margin goods. To combat Amazon’s entry into the grocery sector, big box retailers will need to look for new ways to drive foot traffic while also growing online sales. Developing a truly data-driven, omni-channel experience will become even more critical to retail marketers in the years to come. Marketers will need to synergistically blend their in-store and online channels, capture and translate customer data into actionable insights, and focus on the overall customer experience rather than an individual channel.
If the past is any indicator of future events, Amazon will likely replicate its prior success in meeting and even shaping customers’ needs by creating technology such as Dash and Alexa, which have made online shopping easier and more pervasive. With the acquisition of Whole Foods, it is likely that Amazon will offer Amazon Go and Amazon Fresh to even more people across the United States. Dubbed by Amazon as “Just Walk Out Technology,” Amazon Go transforms in-store shopping using technologies such as computer vision, deep learning algorithms, and sensor fusion. Essentially, items placed (and removed) from your shopping cart are tallied in real-time to your Amazon cart. When you’re done shopping, you simply leave the store and your total is automatically charged to your Amazon account.
This technology provides Amazon with deeper insights into customer shopping behavior that can be used to improve marketing efforts, optimize store layouts, fine-tune product selection and layout, enhance customer experience, and ultimately increase customer lifetime value. Unlike other grocery store loyalty programs that require manual scanning at check-out, Amazon will track purchases seamlessly in real time. With Amazon, it will be effortless. No more scanning your cards. Just sign in and buy.
The Whole Foods acquisition will enable Amazon to more effectively marry its abundance of online customer data with offline data, thereby allowing Amazon to cross-sell more effectively and collect more robust customer insights. Many online retailers, like Amazon, have been reluctant to invest capital into brick-and-mortar establishments. Partnering with an established brand, like Whole Foods, helps to mitigate some of that risk for Amazon, and both parties will ultimately benefit from shared resources and access to additional customer intelligence.
Data, when used correctly, can drive additional merchandising opportunities and pave for the way for more innovative ways to connect with customers. More data will enable retailers to cater their marketing efforts to more targeted customer segments rather than rely on a traditional mass advertising approach.
Growing volumes and varieties of customer data generated by the Whole Foods purchase in combination with predictive analytics will enable Amazon to identify and engage high-value customers and high-potential, “look-alike”, prospects that perform like the two brands’ best performing customers. Amazon will benefit from the data and customer insights gained from its Whole Foods partnership and be able to improve its marketing ROI through more targeted offers. Customers, even those who are reluctant to adopt a new business model, will benefit from personalized, relevant offers based on their shopping behaviors and needs.
Overall the acquisition seems to be a step in the right direction for an industry which has historically seen very tight profit margins, typically ranging from one to two percent. Regardless of if you’re in support of the recent acquisition, it’s clear that the grocery industry, how people shop, the data created and collected, and how companies market to consumers is slated to change dramatically in the years to come.
 Yahoo Finance (peak value in 2006), Google Finance (values for Dec. 30, 2016)