In a previous blog post I discussed the potential for value destruction by the Uber-ification of everything in the app world. Since then, Amazon jumped into the market and bought Whole Foods. Will this move prove to be the lance in the heart for some of these app unicorns?
The Amazon/Whole Foods deal makes a lot of sense for several reasons. First, consider Amazon, an ecommerce giant with impressive credentials for digital selling, analytics, infrastructure, etc. as well as credentials on the equally difficult physical side of things (procurement, warehousing and logistics). Basically—as we all know by now—Amazon gets you stuff really quickly at the lowest price possible. But where do we go from here? Faster? (cue the drone deliveries) Cheaper? (there goes your margin) So what’s the answer? Take all of take process experience in tech and retail logistics and buy something you can’t build yourself: a true premium brand.
Whole Foods is the epitome of a premium brand. Where else can you spend more than $5 on cubed watermelon and feel good about it? Plus, Whole Foods has an extensive national physical retail presence—something Amazon lacks. Further, since Amazon gave in when it came to the web sales tax nexus debate, the transition should be that much easier.
There likely exists a certain degree of SKU overlap in packaged goods (or at least the potential for it) which should drive additional efficiencies in purchasing and distribution.
But, what is Whole Amazon’s game plan? What have they gained? Yes, Amazon maintains they will operate Whole Foods as an independent brand. But come on, that’s like trying to keep a P/E guy from leverage; guaranteed they are going to find new efficiencies to maximize their investment.
From a mobile perspective the potential for a lot more integration exists in terms of the Whole Foods app and its expansion. In the near future they may make it possible to link Whole Foods to your Amazon account. This would be pure gold for Whole Amazon! Imagine being able to correlate users’ online shopping behaviors and purchases with those in the physical, real-world retail realm (even more than they do already). I see this integrating really well with a digital loyalty program.
In addition, as a platform, Amazon can now offer new mobile or digital offerings to compete with the Instacarts, Munchery’s and Blue Aprons of the world. Amazon could easily create a strong competitor by leveraging its digital knowhow and utilizing the stores as hubs for food prep and delivery.
A high cost (and cause) of burn rate for many of these startups is marketing. This will become an even more costly and difficult endeavor should Amazon enter the arena. Clearly, Amazon can lure and acquire new customers at a far lower price than these competitors—simply by leveraging existing relationships along with all data they possess to optimize their targeting strategy.
If I were Amazon, I’d sever Whole Foods’ Instacart deal in favor of Amazon Fresh or a new Whole Foods Fresh delivery option. Why enable a competitor to your digital business? And if I were Instacart, I’d be scrambling to find enough alternative standard and specialty grocers to maintain share. Not to mention, they won’t have the benefit of an integrated view into the customer that Whole Amazon will have. Watch out Postmates. Next they may be coming after you!
Amazon really is going for a 360º view of the customer and will soon know everything there is to know about your shopping habits: what you buy, what you eat, where you shop and when. All of this data will be mined to drive even more offers to keep you locked into the Whole Amazon ecosystem.
Which brings us to a new point. Consider: there’s nothing keeping Amazon from setting up store-within-a-store boutiques inside existing Whole Foods to sell products you’d typically buy online. Why not leverage the premium Whole Foods brand to promote a premium line extension from Amazon? There’s a real opportunity here to expand ecommerce to retail in a way that might combine several integrated digital components, such as reserve in advance, loyalty rewards, exclusive launch access, etc. It will be interesting to see how the mobile commerce strategy evolves with an ecosystem that includes the Amazon app and the Whole Foods app. Will they remain separate, discrete entities? Will Whole Foods acquire some Amazon smarts? Will it be more connected to your retail experience?
The Amazon acquisition of Whole Foods is ripe for opportunity and digital disruption. Mobile and digital players in the space are surely at risk if they fail to innovate to differentiate their offerings from whatever is soon to come from Amazon. This fierce competition will lead to more innovation in the mobile food space, which will ultimately benefit consumers in terms of new services and new products delivered more efficiently at lower costs.
Mobile Strategist / Mobile Product Manager