Uberization of Grocery Stores
How will Amazon's purchase of Whole Foods influence the super market industry? Will we see a domino effect with other retail/grocery outlets? How will this influence consumer behavior?
Amazon's Real Motive
Amazon is a consumer centric technology and logistics company. 52% of all online product searches occur on Amazon and over 60% of the sales are from third party merchants. What Amazon understands better than any other company is consumer behavior. Amazon has 2 reasons to move into the brick and mortar world.
Food Is Ripe For Disruption
Most supermarkets (I will leave Wegman's and a few regional chains out of this) are terrible marketers who have been employing the exact same strategies, in the exact same size stores for decades and have lost touch with consumers. Their extended supply chain is broken and incurrs unnecessary costs that are passed on to the consumer in the form of higher prices.
If supermarkets were good marketers with a continual eye on the consumer, there would never have been a Blue Apron or Fresh Direct.
Amazon is aware of these weaknesses and sees how their superior technology and logistics capabilities can disrupt this channel, save consumers money and build loyalty as they did with Prime and One Click.
Lets break the supermarket down to perishables (anything that lives and has a shelf life) and non perishables (anything in cans and boxes) The non-perishable side of the supermarket has been eroding for years and supermarkets don't even realize it. Amazon, Costco and other e-commerce sites are already selling paper goods, toiletries, personal care and groceries for many years. Niche and specialty sites have been attacking skin care, shaving, baby products and housewares.
So what does that leave? Perishables. Amazon realizes that it is going to be very difficult to get consumers to purchase perishables without seeing, touching, feeling and smelling them. Consumers are particular about what type of steak they like or produce. These nuances cannot yet be achieved online. But Amazon wants to figure it out so they can domminate this segment.
By the way, Whole Foods was a predominantly perishable based retailer. Grocery was not their primary business.
The Other Reason Amazon Wants Brick And Mortar Stores
Amazon Prime is a loyalty builder. Consumers are now spoiled by free 2 day delivery. The issue for Amazon is the cost of shipping is still runnning at a loss. The biggest culprit to this are small, lightweight and low value packages.
Amazon will look at these brick and mortar locations as mini fulfillment centers. They will figure out how to stock high volume, low weight and low value items in these locations. They will use their drone strategy to lauch from these mini FC's and reduce their cost of delivery.
As Amazon integrates Whole Foods into their business, they will study all the aspects of it. They will keep what is great and build on it. They will take what is broken and eliminate it or change it.
At the same time, Amazon is continuing its building of book stores, which are also used for package pickup and minim fulfillment centers as well.
Once Amazon develops their model using brick and mortar stores, they will go on an aquisition spree and buy much weaker retailers with good locations.
In the end, consumers will win because Amazon develops programs, products and services that consumers love.