A Hunger For More

Amazon’s potential acquisition of Whole Foods triggered a fall in the stock prices of grocers round the world for a simple reason. It heralds a new seriousness in Amazon’s push into groceries, and a new era for food retail that will challenge traditional incumbents. It thus likely represents a major turning point for the retail sector – and thought the first impact might be felt in the United States, Amazon groceries will become a presence in the UK and the rest of the world sooner rather than later.

Food is the largest retail market, but it requires a different approach from Amazon’s traditional model. People like to be able to see – and feel – the products they are buying. That means sometimes going to a physical store.

Till now, Amazon has taken tentative steps into groceries, for example through Amazon Fresh, and its Amazon Go no-cashier stores.  Whole Foods will take Amazon’s food presence to another level, by bringing some crucial elements that is has been short in – and that it needs in order to dramatically improve its market share in food.

Most importantly, Amazon will acquire a network of physical stores and the supply chain and fulfilment centers that goes with them. The numbers may be small compared to the stores run by traditional grocers: some 400 in the United States and nine in the United Kingdom. But they should enable Amazon to expand its multi-channel presence, including click-and-collect services, with the potential to reduce delivery times and costs.

Moreover, Whole Foods’ stores come with a crash course in on-the-ground food retailing.

Whole Foods has always been a highly decentralized, local organization. Its connection into the markets it serves is amongst the best in the industry. If Amazon can pair its highly efficient, centralized, technology-driven approach to retail, this might form a powerful combination that has the potential to turn Amazon into a major force in food retail.

More broadly, the move signals that Amazon could be ready to move to a second, more-aggressive stage of Amazon Fresh. It will have access to great own-brand products, meaning less reliance on branded suppliers. And Amazon will also gain brand credibility in the food space, which could lead to an acceleration of customer trials of Amazon Fresh.

Till now, Amazon Fresh has made more headlines that it’s had real impact, but that is changing.

Amazon’s food foray will have its immediate impact in the US, where Whole Foods is a bigger presence. In the UK, the influence will likely be limited at first to Whole Foods products finding their way into Amazon Fresh in London, and a larger role for the Whole Foods stores there.

But the UK and the rest of Europe will not remain sheltered for long – one reason why the stock prices of UK retailers took a hit on Friday as well as those in the US. We expect Amazon will be looking at to look at similar strategies in other markets, as well as other powerful partnerships and tie-ups to help it reach a new level of penetration – such as the recent deal on delivery with DHL in Germany, which at a stroke removed one of the biggest barriers to adoption in that market. Amazon has disrupted large areas of the retail space already – and it won’t leave food retail quiet for much longer.