Working out why Amazon’s proposed acquisition of Whole Foods Market has made such an impact on the industry is a little difficult to determine.
There are the obvious reasons, of course, such as the size of the deal, the audacity of moving into such a different market, the unexpected partnership of two very different brands, and the oscillating stock prices.
But maybe above all, it is the puzzle about what exactly the company is trying to achieve and what this means for everyone else in the sector.
Clearly part of Amazon’s reasoning is its big play in online delivery in the US.
Online grocery in the States still lags way behind the UK, capturing less than a percentage point of the market.
Amazon presumably needed quality products, scale and a set of stores to act as fulfilment hubs for urban delivery in order to achieve this and Whole Foods delivered all three.
“Was Whole Foods the missing piece that could deliver the fully integrated solution?”
However, what this means for Amazon’s Fresh same-day delivery service for fresh and frozen grocery items, is another puzzle.
Was this experiment ultimately a dead end, perhaps only working in denser urban environments?
Was Whole Foods the missing piece that could deliver the fully integrated solution? If so, it is the strongest sign yet that one future option for the grocery store lies in its role as a logistics hub.
Naturally, grocers in the UK, where these models are more developed, like to keep their online strategies close to their chests.
Ocado, for example, is now profitable but is pursuing a different strategy employing greater central automation to make it easier to deliver larger SKU counts and a higher fulfilment rate.
“While completely feasible, this all still feels like small change for the online giant”
Maybe Amazon was excited about selling Whole Foods goods on its own site?
It could turn a higher margin using its Prime and pantry services. Maybe it was excited about the recent trial of Amazon Go, the store with no checkouts, and could see the benefit of rolling this into an existing estate?
While completely feasible, this all still feels like small change for the online giant.
The real clue is whether Amazon feels the same way about groceries as other previously pureplay retailers who have also gone from clicks-to-bricks.
There have been numerous examples of online insight feeding into retail expertise.
“These are businesses which have had to understand how to rapidly translate consumer data into product improvement in order to succeed”
Amazon’s own physical bookstore leverages online data to produce a better-curated range for customers, and there is a rash of popular US companies picking up on the trend including the Honest Company, Bonobos and Graze.
Fundamentally, these are businesses which have had to understand how to rapidly translate consumer data into product improvement in order to succeed online. They rely on scientific infrastructure such as cloud computing to democratise data.
But, they also depend on a different set of behaviours such as agile working, rapid prototyping, iterative approaches to new country or product launches, testing on an industrial scale, and the blending of technology and creativity to truly succeed in this market.
Master of skills
It is mastery of the above which is a key factor in Amazon’s impressive track record to date. It is also why all those stock prices moved.
Amazon’s ability to retain these skills across multiple territories, services and product lines marks a singularity compared to how other businesses operate.
Previous processes always slowed with scale and complexity, but at Amazon the correct application of technology seems to have helped it buck this trend.
That all said, the only question that really matters is whether the grocery incumbents, such as Tesco and Sainsbury’s, will be able to grasp the advantages that Amazon has spent years nurturing before it works out how to plug its model into Whole Foods’ scale.
People, not to mention the stock market, expect them to pull off this audacious move and to do it well. I’m looking forward to seeing how this one works out.