This past Friday’s announcement of Amazon heading to purchase Whole Foods is the first time we see clicks buying bricks. The implications of the long term disruption that we have begun to see seems like it’s becoming more and more of a reality. For the most part, players in the retail industry have stated that the supermarket industry will not be affected by the growing Internet retail business. Fresh produce and shopping for prepared foods always seemed to be an in-store customer experience that could not be replicated online. Amazon has an opportunity to buy the best-in-class retail chain in any category it wants. The truth is, Amazon does not need to buy a department store chain or any other retail merchant because it’s competitive enough right now through its online business. What we see with the purchase of Whole Foods is Amazon moving into a category it has yet to determine that it will dominate. This acquisition is a game changer for Amazon and the supermarket industry as a whole and the long-term implications can be quite significant.
Recently I spoke with somebody who lives on the Upper East Side who buys weekly online at amazon.com and shops weekly at Whole Foods. We discussed all of the opportunities for him and his wife to shop for their groceries, prepared foods, and all of their needs through Amazon and get it delivered same day from the Whole Foods on 57th St. No longer will they have to return through UPS; if they would like, they can make the returns at the Whole Foods store. For him, Whole Foods now becomes the center of all shopping for his family.
Amazon officially moved into the daily needs business. One can purchase food, toiletries, soon pharmaceuticals, and any specialty item that you would find in a supermarket and have it at your home before you get back from work. In an urban environment, it is very difficult for supermarkets to compete with that, as long as they’re able to keep pricing down.
We will see how the rest of the retail industry reacts to this acquisition. I do think the doomsday scenario for the supermarket chains is as bad as the market reacted when the news hit. In the short term, the impact will be very little but the long-term implications are quite significant and game changing. The power of capitalism is that the customer is the one that drives the business. Right now, Amazon is hyper-focused on the customer and getting the customer what it wants at the prices they want. Walmart is not going to go down quietly and they will continue to make moves which I look forward to seeing in the future.