Amazon is Buying Whole Foods Market: Great for Grocery Innovation

North American home cooks can expect even more convenient options and innovations to arrive over the next few years with Amazon’s announcement that they are acquiring Whole Foods. Moreover, the secondary competitive effects have a shot at finally ushering this once slow-moving but vital retail sector into a much more convenient and frictionless digital age.

The aggressive move, by far Amazon’s biggest acquisition to date, greatly expands Amazon’s currently minuscule brick-and-mortar retail footprint, and allows Amazon to much more rapidly scale services like grocery pick-up, home delivery and online ordering features.

Here in Seattle, we have a front-row seat to the innovations and experiments that Amazon has performed regarding grocery: delivery with Amazon Fresh, Dash Buttons, Amazon Go (“cashierless” stores), Amazon Fresh Pickup and more.

Whole Foods has 465 stores in North America and the United Kingdom, and according to Amazon it will continue to operate as a separate entity. Amazon has been a leader with grocery innovation, but so far it’s experiments have been small-scale. They’ve amassed considerable data on what works (and doesn’t) about grocery delivery, handheld voice tools, ambient voice devices like the Echo, cashierless shopping and consolidated grocery pickup.

We here at BigOven are always happy to see innovation in this once-sleepy but absolutely vital grocery industry, and today’s news is causing a lot of heads to turn among our partners in the industry.

Wall Street’s Early Read

Wall Street loves the deal — both Amazon and Whole Foods are up significantly:

And it knocked nearly $40 billion of market cap off of major grocery retailers and consumer packaged goods companies:

Our Take

We love to see innovation in the space and applaud Amazon for taking an aggressive, long-term step here to deliver more innovation to grocery. The US market for food and beverage is $795 billion, it’s the single highest-occasion shopping we do as consumers. Food and beverages accounts for 30% of all U.S. personal spending excluding cars and energy, according to Morgan Stanley.

On a data level, this gives Amazon a much clearer picture of consumers, and not just in the grocery category.

We are, after all, what we eat. Consumers express enormous implicit information when they buy at a grocery store. If you know consumer A is buying Kraft Macaroni and Cheese, chips and a case of Coors Light on a Friday afternoon in a transaction size of $38, and another is purchasing watercress, arugula and salmon in a $230 transaction on a Tuesday, you already know a lot about these two consumers. And that fuller picture will be used to better inform all recommendations.

We love to see innovation in grocery to make life easier for the home cook, it’s precisely what we’re about. For quite some time now, we’ve been wanting a world where home cooks could plan what they want to make, intelligently use up more of what they buy at the store, and instantly get items delivered to them (or pick them up) to make the perfect meal. This commitment by Amazon is terrific to see, as it alone should bring some great innovation. Its secondary effects might generate even more impact however — it is already causing some much-needed discussion in retailer and packaged good company boardrooms.

It’s high time things get even easier for home cooks. We are increasingly pressed for time, yet we still want to put a great meal on the table for our families. This massive transaction will no doubt push great chains like Kroger and Safeway further in completing their solutions for home cooks.

Amazon acquires:

  • Loads of data on high-end consumer buying preferences
  • Retail footprint
  • Distribution infrastructure for grocery delivery – employees, warehousing, food and produce sourcing, refrigeration, merchandising
  • Live retail labs for buying/merchandising
  • Logical delivery points for Echo, web and shopping list canvases

At BigOven, we’re all about using digital technology to improve the lifecycle of the home cook. This cycle, which hits daily has a large amount of cognitive load and physical hassle. Many of us love to cook, but find the process of figuring out what to make, planning, shopping challenging. We think the Amazon-Whole Foods transaction helps close that loop for Amazon, though it might not be fully aligned for all demographics (Whole Foods serves customers at the high end of the market).

After dabbling in various experiments in the grocery space, Amazon’s commitment signals a new digital era in grocery. In our view, given the size of grocery and its high occasion, it makes sense for Amazon to make grocery a strategic priority, as it fits with Amazon’s goal of being earth’s most customer-centric company. Amazon will continue to get great data on what consumers are buying to be able to deliver even more customized options.

The race is now on to own America’s shopping list, and if Amazon really wants to own it, they probably need a way to stock and deliver grocery items at scale. Players need a combination of assets such as:

  • Customer scale
  • Distribution infrastructure
  • Pick-up infrastructure
  • Digital platforms to look up recipes, manage a recipe collection, create plans and a grocery list
  • Planning tools with curated menu ideas
  • Household list management from any screen or canvas
  • Personalization and preference technologies

Amazon is known for market disruption, and we both welcome big bets like this in this category, and we expect to see counter-moves by big retailers like Albertsons Safeway, Kroger,  Trader Joe’s, Ahold Delhaize (Food Lion, Stop & Shop etc.) and others.

Across many categories of Amazon’s business, Walmart has been a chief rival, and this certainly ups the ante in the Amazon vs. Walmart competition. Amazon has certainly shown other retailers that unless they innovate, they’re in danger of being obsolete, as more and more purchase decisions will take place via ambient voice interaction, mobile and web, use machine learning for personalization and targeted deals, and much more.

But it won’t happen overnight, and Amazon initially gains primarily high-end grocery shopper coverage with this move. In addition to the logistical challenges of integrating a workforce with 67,000 employees, another major in our minds is whether the Whole Foods customer is (by and large) the same as the core Amazon customer, and also whether the core values of each institution match closely.

It also remains an open question whether the relatively high-end nature of the the Whole Foods customer fully aligns with Amazon’s core customer base. Another way to put this: you can’t buy Diet Coke or Kraft Mac ‘n Cheese at Whole Foods, and it’s for a deliberate reason — it’s in the name of the company itself. To achieve what we believe to be Amazon’s grander ambitions in the space to serve more than just the organics high-end purchaser, we predict that Whole Foods infrastructure will ultimately be used to expand downmarket — out horizontally from their current core base, likely via rebranding (e.g., Whole Foods becomes Amazon Fresh Organic, with Amazon Fresh offering the widest variety.) Not all home cooks are Whole Foods customers, though most of us here at BigOven are.

This presents a particularly interesting situation for Instacart. Whole Foods is an investor in Instacart, and one of Instacart’s top sources for delivery is Whole Foods. Instacart can continue to be a “Switzerland” for home delivery, neutral between parties, but more and more they will be in competition with an integrated Amazon-Whole Foods.

On the grocery delivery and/or pickup front, it’s still too fragmented. Most consumers shop at more than one grocery store in a given month. We think there’s an opportunity to establish a digital standard for grocery list communication between apps like ours (i.e., apps which home cooks use to make grocery lists) and grocers that have the end-products to purchase, in much the same way the retail photo finishing industry accepts orders from multiple photo apps.  It has to provide a financial incentive for apps to connect, but it’s completely feasible today; it just needs the will to make it happen. This would make grocery purchase and delivery considerably easier and increase velocity of home delivery and out-of-store selection for pickup.

For our part, BigOven currently has 3.8 million members, many of whom make grocery lists and would love home delivery; it’s a frequent feature request. If you’re in the grocery retail industry or delivery business and you’d like to discuss that with us, reach out.

About BigOven

BigOven is a leading app for the home cook. From great recipe ideas to organization, from planning what to make to grocery shopping, preparation and social sharing, BigOven makes cooking simpler. BigOven has 3.8 million members, 13+ million downloads, 1.6 million recipes and 4,000+ food bloggers with the Save Recipe plugin. Every day we welcome thousands of new members, and we hope you’re one of them. Join us today.

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