I feel pretty good about saying that Walmart is the coyote; they are capable of surviving pretty much anywhere which has lead to them being everywhere, they push out other species retailers that may be competing for the same resources shoppers, and for a long time, Walmart has been at the top of the food web retail economy.
When we start to look at other retailers things get a little tricky so let’s get to the real reason you’re here: You want to know who represents the elk.
Elk, if you remember, thrived in the absence of wolves. Coyote, for a number of reasons, posed only a negligible threat often only preying on smaller, weaker members of the herd but never putting the overall population in jeopardy. Not even the biggest baddest coyotes were going to wipe out the elk, so their numbers grew and their behavior was largely influenced by want, rather than need.
Similarly, grocery stores have felt very little pressure from other retailers. Walmart has likely contributed to some weaker grocery chains leaving markets or closing up shop for good, and do control the single largest block of the grocery market, but it’s still less than 15% and their grocery-only Neighborhood Market?takes up a much smaller percentage. Even Target’s expansion into the grocery space has really only helped Target’s bottom line but has moved the needle very little when you look at their influence on the industry.
Your favorite regional grocery stores, on the other hand, continue to thrive while new and exotic species, like Trader Joe’s and Aldi, are showing up in select markets where they have managed to carve out a nice little niche.
Grocery stores, though, are still just?grocery stores. Look at pictures of the first Publix Market opened in 1934. Sure, they had fewer options, but other than size, the basic concept is identical to any Publix you walk into today. And aside from clever tricks that force shoppers to crisscross the store in search of popular staples, grocery stores haven’t seen any meaningful change since the introduction of the barcode in 1974.
So grocers, like elk, have become complacent; doing little more than engaging in territorial disputes with rival grocers. Lots of grunting, and tussling, but no fundamental change.
So, what’s a wolf to do?
Despite Amazon’s acquisition of Whole Foods, their stated 2025 goal of being one of the “top 5” grocers, the market’s initial knee-jerk reaction which lead to grocery stocks getting hammered, and an awful lot of digital ink dedicated to eulogizing the grocery industry, I just don’t think Amazon’s ultimate goal is to be a grocery chain – they won’t be thinning the herd the way wolves did in Yellowstone. [editors note: this is where I abandon the wolf/coyote/elk thing. It just started to get weird.]
If you’re hung up on the grocery angle of this acquisition, you’re missing the bigger picture.
Let me explain.
If adding grocery options to their portfolio was Amazon’s only goal, they wouldn’t need a high-end boutique grocer with relatively limited product offerings that, in February, posted its sixth consecutive quarter of same-store sales struggles and only occupies slightly more than 1% of the total grocery market. To give you an idea of what that actually looks like, compare Publix which operates 755 stores in Florida alone with the 432 stores Whole Foods operates in 3 countries. 429 of which existed before being acquired by Amazon.
What about Food Delivery?
This is, without question, part of their plan — Amazon has been working on their AmazonFresh service since 2007 in a few markets, and with this acquisition, we could see AmazonFresh make its way to Whole Foods locations sooner than later. This also gives Amazon an opportunity to acquire a meal delivery services like Blue Apron; it fits their business model perfectly, and would be easy to integrate. But neither of these services really pose a threat to traditional grocers. Food delivery services already exist in virtually every city (unlike Whole Foods). So, if you live in a city with a Whole Foods, and you want your Whole Foods delivered, you’ve had that option for at least a couple of years now.
In the long term, food delivery will greatly reduce the need for brick n mortar locations but the adoption will be slow. Practically speaking, the need to grab an ingredient you don’t have for a meal you’re in the middle of preparing or busy families planning meals at the last minute are likely obstacles you can’t overcome with delivery alone. The problem Amazon would have to overcome isn’t of slow customer adoption, but of chaotic human behavior driven by the very thing Amazon is trying to do. As things become easier, they require less attention, less attention leads to more mistakes bingo bango bongo, you don’t realize you’re out of brown sugar until you’ve already mixed the eggs, flour and oil. Right now, the simplest solution, is “honey, can you run to the store?”
Didn’t short-sighted prognosticators say similar things about Borders, Blockbuster and music stores?
Probably, but those stores, even collectively, represent a fraction of the total number of chain grocers across the country. And, unlike CDs DVDs and books, food will never move from physical consumption to digital consumption. Though I’m positive Amazon – or Elon Musk – is working on a solution for this problem.
To really understand what Amazon is doing, I think we have to look at the service Amazon actually provides.
We tend to think of Amazon as a retailer – and technically they are – but the vast majority of products purchased at Amazon.com are not sold by Amazon. Amazon simply acts as a transaction facilitator, because, first and foremost, Amazon is a technology company?and like many technology companies, their goal is to make things easier. With Amazon Dash, their patented 1-click Ordering, ordering through Alexa, groceries ordered online and loaded directly in your car via AmazonFresh’s pickup service, it’s clear that Amazon’s primary goal is to make buying easier.
A 100% frictionless payment process.
Amazon Go is a utopian, and possibly unrealistic vision of what they plan to do. Amazon Go, as Amazon describes it, “… is a new kind of store with no checkout required. We created the world’s most advanced shopping technology so you never have to wait in line. With our Just Walk Out Shopping experience, simply use the Amazon Go app to enter the store, take the products you want, and go! No lines, no checkout.” Amazon had planned to open Amazon Go to the public in early 2017, but technical set backs have delayed public availability.
Amazon’s acquisition of Whole Foods, aside from all of the obvious benefits brick n mortar locations provides to their AmazonFresh service, opens up an opportunity to test out their services on as large a scale as they are comfortable with. But, don’t expect to see Amazon Go stores popping up anytime soon, if ever. Physical locations, save Whole Foods and some other very minor exceptions, isn’t Amazon’s play here.
This is the key: Amazon doesn’t have to build physical locations to make these services available to consumers.
Phase 1. Adoption and Beta Testings
Making some assumptions about the average Whole Foods customer, I suspect they tend to be younger, tech savvy, likely to be early adopters who appreciate time and money saving technology. I’m also going to guess that the number of Whole Food shoppers who are also Prime members is very high. This makes Whole Foods an ideal test environment with rapid customer uptake.
Phase 2. Whole Foods?Roll Out
Once Amazon has dialed in the service they will roll it out nation wide. Every Whole Foods store in the country will offer some version of either the checkout-less Amazon Go service or AmazonFresh as well as act as a local hub for food delivery that would otherwise be impractical.
Instead of “Honey, we need brown sugar”, it’s now “Alexa, add brown sugar to the shopping list and schedule pick up in 15 minutes.” and then, as Amazon describes it: “With our Just Walk Out Shopping experience, simply use the Amazon Go app to enter the store, take the products you want, and go! No lines, no checkout.”
Once you leave the store your Amazon acct is charged.
Phase 3. Broad Adoption
Consumers will fall in love with the simplicity and convenience of the service and those who don’t live near a Whole Foods will grow restless and rest of the retail world will be scrambling to figure out how they can implement a similar service.
As luck would have it, a little company named Amazon has already built the tech, locked down the patents necessary thanks to a broken patent system, and bundled it in an affordable and easy to deploy package.
Phase 4. Take a Cut of All Economic Activity
Amazon is now in a position to not only directly compete with other retailers, but to provide a 100% frictionless payment platform to those same retailers that then allows Amazon to take a cut of every transaction processed through it. That means that even when Amazon customers opt to shop at local retailers, Amazon is still making money off of most of those shoppers.
Or, maybe I’m wrong. Maybe Amazon’s whole plan is to bleed out, snatch up, and ultimately replace a wide range of retailers and invest in physical locations.
That, to me, would be exceptionally boring.
Like what you’ve just read? Why not subscribe to the Blue Dog Blog?
[yikes-mailchimp form=”1″ submit=”Subscribe Now!”]