Get ready. Amazon-Whole Foods deal will change how you buy food forever – USA TODAY
Amazon is buying Whole Foods Market for 13.7 billion dollars. We talk to shoppers about the deal.
For anyone in the business of selling, supplying or hauling groceries: Things just got real.
Amazon.com’s $13.7 billion purchase of Whole Foods instantly makes it a major player in the U.S. grocery industry and that leaves a lot for shoppers, retailers and other companies involved inÃ‚Â the industry to chew on.
The online seller is bringing its firepower to a grocery industry plagued by razor-thin profit margins. The move could slice into profits for food manufacturers, other supermarket chains such asÃ‚Â the nation’s largest by market share, Kroger, and behemoths like Walmart, whichÃ‚Â is currently the biggest seller of groceries in the U.S. with more than one-quarter of the market, according to Euromonitor. It also potentially creates a challenge forÃ‚Â companies that deliver groceries such as Fresh Direct and Peapod, and ready-to-cook ingredients and recipes to customers’ doors, like Blue Apron and Sun Basket.
Ã¢Â€ÂœOnce Amazon is a player in the industry, anything can go,Ã¢Â€ÂÃ‚Â said Joe Agnese,Ã‚Â seniorÃ‚Â food retailing analyst atÃ‚Â CFRA.Ã‚Â Ã¢Â€ÂœThe big threat is what else they can do. Now that they have a retail presence with (more than) 400 stores, long-term they can expand on that threat. They can (bring) pricing pressure. They could bring down prices and everyone wouldÃ‚Â have to match them or lose share.”
For years, Amazon has burst into new areas of businessÃ‚Â introducing the ease and efficiency of shopping online by bringing books, electronics, clothes,Ã‚Â household items and someÃ‚Â food items, often at low prices, to shoppers’ front doors. The value, convenience and the ability to easily comparison shop onlineÃ‚Â hastened the demise of both smaller shops and many bigÃ‚Â household names. Remember book superstore Borders? Electronics chain Circuit City?
The broader retail industry’s tailspin has only deepened with Amazon takingÃ‚Â a big share of the blame. Once stalwarts of the industry, Sears, J.C. Penney and Macy’s are closing hundreds of stores. Mall favorites like The Limited and Gymboree have filed for bankruptcy protection. Now, traditional grocersÃ‚Â could face a similar fate.
Ã¢Â–ÂºA wave of merger and acquisition activity may on the way as companies seek scale.Ã‚Â Amazon may, itself, be the acquirer.Ã‚Â Ã¢Â€ÂœI donÃ¢Â€Â™t think that this will be the last of AmazonÃ¢Â€Â™s purchases,Ã¢Â€Â said Rafael Romero, head of Florida-based real estate firm CREC’s retail division. Ã‚Â Ã¢Â€ÂœThey fully recognize that brick and mortar and online retailing is all retailing and you need both.”
Other companies could look to buy expertise in crunching customer data — an area at which Amazon excels — and one that more shoppers, especially theÃ‚Â Millennial generation,Ã‚Â embraces.
Ã¢Â€ÂœI think itÃ¢Â€Â™s a great idea,Ã¢Â€Â Trish Wichmann of New York said about AmazonÃ¢Â€Â™s reputation for speedy service while out shopping on Friday. Ã¢Â€Âœ(Consumers are) used to texting. WeÃ¢Â€Â™re used to instant gratification. ThatÃ¢Â€Â™s what we want. I think industries are trying to do that.Ã¢Â€Â
Big foodÃ‚Â stores that haven’t been getting informationÃ‚Â on customers and crunching it are immediately behind. One of Amazon’s strengths is the way itÃ‚Â captures purchase history and makes suggestions for new ones.
“Amazon is smart about mining data. They own dataÃ‚Â like Saudi Arabia has crude oil. Data is going to become only more (important) for those in grocery store business,” said Mark Hamrick, senior economic analyst at Bankrate.com.
Ã¢Â–ÂºThe challenges will extend beyond grocery aisles. Food manufacturers and producers need to gear up for two key possibilities: Amazon nudging itself into shoppers’ carts with food of its own making. It already has its own brand of many items such as batteries and pet food and Whole Foods sells its 365 Everyday Value brand.
The other major threat: AmazonÃ‚Â engaging in margin-busting negotiations.
“If Amazon is able to gain the kind of scale they want in this space, theyÃ¢Â€Â™ll be very tough in commanding a price,” Hamrick said.
Mass retailers now selling groceries, like Walmart and Target, and traditional supermarkets will need to be more competitive to retain customers, especially if Amazon cuts Whole Foods’ highÃ‚Â prices.
Walmart had long been the biggest threat to the supermarket industry. In the 1990’s the chain began adding full-line grocery sections to its stores in a bid to increase sales and push foot traffic to the more profitable clothing and general merchandise it sells and Target followed with its own grocery sections.Ã‚Â Today, new entrants such as Germany’s Lidl are coming into the market and chains like Aldi (also from Germany) are adding and revamping stores by adding more organic and specialty merchandise such as gluten-free foods, at low prices, to attract shoppers, creating an hyper-competitive environment.
Ã¢Â–ÂºMainstream grocers will need to take a hard look at themselves.Kroger’s stock droppedÃ‚Â Thursday after the company lowered its outlook for annual profit and tanked again after the Amazon-Whole Foods deal was announced. Kroger’s shares lost 28% for the week. Stocks of other food sellers tanked.
“We’re going to see polarization here. Some players, like Wegmans and Publix, are strongly differentiated. I donÃ¢Â€Â™t think theyÃ¢Â€Â™ll lose because of that. The ones that are not so strong and differentiated are more likely to fall victim to the price squeeze and youÃ¢Â€Â™ll see the shake-out. Other chains will look to buy these chains to consolidate,” said Neil Saunders, managing director of GlobalData Retail, pointing to Buy Low Market in California and Ingles in the South as chains that might struggle to survive.
Ã¢Â–ÂºIn the near-term, at least, the big winner will probably be shoppers.Ã‚Â Consumers can look forward to more than just extra cash in their wallets when they leave their local grocery stores. They might see completely overhauled stores — smaller footprints and larger assortments of exclusive brands, which is the successful German approach already invading the United States. Lidl opened its first U.S. stores on Thursday and Aldi is planning to add another 900 American stores and remodel the majority of its 1,300 existing ones. And Amazon’s tech heritage could completely refashion grocery stores fromÃ‚Â how they are laid out to what products are offeredÃ‚Â to how shoppers gather their purchases.
Longer-term it’s hard to say, but some people and consumer groups have already expressed concern about one company potentially having so much power.
Ã¢Â€ÂœIf you look at mergers in other industries, you already see what are the end results,Ã¢Â€Â said Robert Ambrozy of New York.Ã‚Â Ã‚Â Ã¢Â€ÂœThis will impact the end users and the price overall. TheyÃ¢Â€Â™re monopolizing the markets, so the rates will definitely go up.Ã¢Â€Â
Ã¢Â–ÂºIt’s more a question of when, not if, Amazon will game-change delivery. Purchasing Whole Foods gives it new leverage to expand itsÃ‚Â online grocery and delivery business, which already includes Amazon Fresh, it’s own grocery delivery service in limited markets such as New York, Chicago, Los Angeles and San Francisco. Its presence willÃ‚Â force regional grocery stores and online grocery delivery services to step up their service, but won’t annihilate them. Companies like Blue Apron and Hello Fresh that delivery uncooked ingredients and recipes could also beÃ‚Â pressured.
“Everyone’s game just needs to get tighter and that battle for the customer becomes all the more apparent,” said Jeff Roster, vice president of the research firm IHL.
“This is brand spanking new territory we’re smashing through here.”
USA Today reporters Sean Rossman, Charisse Jones and Kellie Ell contributed to this report.
Follow USA TODAY reporter Zlati Meyer on Twitter: @ZlatiMeyer
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