October 18, 2018

Amazon’s Hollywood play on Whole Foods

Why is the Amazon purchase of Whole Foods different from other grocery retailer purchases? How does an online book and gadget seller take on the world of food?
It seems so simple when you look at the Amazon business model and it explains how they viewed the purchase of Whole Foods. Amazon will take on the grocery industry and restaurant business from a perspective of curating great food to their legions of Prime customers hooked to Prime delivery. It was a content purchase.
For many executives in the food world, their playing field of food retailing and restaurants are safe from the reaches of the internet and online users. Many have released online apps and pick-up ordering for their stores but they expect their real estate provides the protection necessary from online.
American consumers are entrenched with purchasing food in brick and mortar stores and restaurants. We purchase 98% of our groceries from retail stores and it will take another 4 years before the share of online reaches 4%* of all US groceries. For many retailers, this slow build is not showing in their numbers and will not be visible for many years to come and likely too late for many.
It’s been common place for venture funds and investors to purchase retailers for consolidation or market gains. The Whole Foods purchase was the first grocery store purchase designed to provide online content. It’s a Hollywood style buyout.
Disney, MGM, Universal, and Time Warner Studios have massive value tied up in their major studio libraries with close to 20,000 film titles. Whole Foods has more than double that number of products and Amazon wants them online. In addition to the products, they have developed proprietary standards and brands that have a strong following among Whole Foods customers and the likely future of healthier foods.
Whole Foods has set the standard for quality and health in food, body, and other household products as the world becomes more focused on health. Their focus on developing proprietary standards and developing exclusive relationships with vendors places them in a unique and far ranging position for the future of food.
Whole Foods developed their own brands around the 365 label along with high quality and standards focused in several areas: food ingredients, animal welfare and meat quality, sustainable seafood, body-care standards, non-toxic cleaning products, and cage-free eggs since 2004. They have set the exclusive standard for an entire industry. Many retailers and suppliers defer to the Whole Foods standard as the defacto rules of engagement with the natural customer that is becoming quickly mainstream.
Amazon recognized and purchased this intellectual property in the purchase of Whole Foods and desired full complete access to these products for marketing to their Prime Members. The Whole Foods concept will grow with future purchases by Prime Members without adding a single Whole Foods retail location.
If we visit the Whole Foods website we can see these changes taking place now. They are devoting about 20% of the Whole Foods retail website, and several pages even more, to touting the Prime advantage and shouting for customers to download the app that will include delivery.
Amazon has no interest in the grocery store business, their voracious appetite is to expand the purchase category and cart size of the Prime customer. “Alexa, bring me a gallon of 365 soy milk and a dozen eggs.”

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