On 16th June 2017, the retail world woke up to the news that Amazon will be purchasing Whole foods market, a chain of organic grocery stores, for $13.7 billion approximately. The deal will be $42 per share and all in cash.
Well, Amazon has built a global empire by consolidating its position in sectors where it has had limited presence. Amazon’s ability to correctly identify consumer motivations has enabled it to position its offerings strongly in markets where there are too many players to vie for consumer dollars.
All the above factors have made Amazon one of the largest retailers globally. The focus of Amazon is to offer quick deliveries and seamless exchange options to its millions of consumers. While it has invested in building more locations, reaching a massive scale will entail years of construction. Time is critical in the retail sector, and the acquisition of Whole Foods Market gives Amazon a shot at same-day delivery, which it currently offers in nine markets.
This deal will also give Amazon an increase in the huge customer data held by these grocery stores & retailers with combination of already existing customer data. This data gives Amazon an enormous inside buying and financial information of the consumers. Amazon already knows its customers product preferences which they are purchasing online. Through these customers wish lists and gift items lists they can use the knowledge of this buying habit of the customers to push choices at each of them.
As there is great demand and market for fresh & organic products, and less supply, the traditional packaged food brands or industry will be the ones that will be the most hurt, as customers will be & are looking for more fresh & natural products with all the other facilities provided by Amazon.
The listing & cost structure of the products will be undeniably the initial focus for Amazon. The packaged goods companies have large market share as compared to the grocery stores. The well-rooted packaged food maker companies have major market shares based on an economic & distribution model which can suddenly cease to function.
Amazon will give online grocery ordering a boost, especially with busy professionals & families with young children. The efficient & convenient shopping experience online & offline will save time, money & energy of the customers. Amazon can also work out whole foods on faster technical check out process in physical stores for those who prefer to shop through the aisles(just like the “Just walk out” technology launched last year on Amazon Go).
With the change driven by consumer preferences and intensified by lessening shelf space and growing competition from ready to eat foods and delivery services, the pressure for companies like General Mills(the huge company which owns Betty Croker, Nature Valley, cheerio’s, Pillsbury etc.) & other packaged food companies is definitely going to be sky high.