Amazon’s Fresh Approach to Online Grocery Shopping: Whole Foods

Will e-commerce king Amazon use the Whole Foods grocery acquisition to turn the supply chain logistics industry on its head?
The news that Amazon is buying Whole Foods got me thinking.  What do these two businesses have in common?  What kind of synergy exists to fuel this new strategic alliance?
Both Amazon and Whole Foods pride themselves on high rates of customer satisfaction.  The two companies go about it very different ways, one virtually and the other entirely in brick and mortar stores.  The two seem incongruous partners but perhaps the strategy behind acquisition is simple.

First, let’s start with what consumers want and expect these days. Today, consumers desire fresh, healthier foods that are less processed and locally sourced.  Organic and non-GMO foods continue to rise in popularity.  Consumers have become increasingly interested in product diversity, favoring a wide range of ethnically diverse cuisine choices and food items that address specialized dietary concerns such as gluten-free, vegan, lactose-free, etc.  The expansion of urbanization and the desire for convenience have resulted in an increase in food deliveries from restaurants, specialized retailers and supermarkets.

Today’s consumers want to buy anything they want from anywhere using any type of device and pick it up or have it delivered any way they want.  This paradigm, known as omnichannel is Amazon’s playground.  The omnichannel and e-commerce trends have impacted the supply chain with a boom!  The supply chain had been developed to ship pallets of goods to distribution centers rather than to ship products directly to individual consumers.  Shipping to individuals is more costly and complex.  This requires different ways of organizing inventory as well as cutting edge warehouse management software to fulfill multiple orders online accurately and efficiently.

Amazon has re-engineered their supply chain and logistics network in order to optimize it to accommodate consumers’ desire for fast, low cost delivery. 

By positioning its distribution centers in or near urban areas, Amazon has been able to offer same day delivery in many instances, to Amazon Prime Now customers living in high density urban areas. To expedite deliveries, Amazon built distribution centers fed by 86 huge fulfillment centers, but only with approximately 10,000 bestselling items. The company continues to chip away at supply chain costs and inefficiencies and to grow its U.S. logistics network.

Although Amazon has reigned supreme in online retail, they have not succeeded in online grocery sales.  By buying Whole Foods, Amazon seems to be pursuing a new strategy, one that unites the power of e-commerce and omnichannel retail with brick and mortar stores to meet consumer expectations.  Amazon is open to the world of new possibilities, and to finding new uses for other models such as when they opened their physical bookstores.

Whole Foods, in contrast to Amazon, lacks technological expertise and exists primarily in the physical space.  But Amazon has begun to embrace the allure of physical stores.  Designed to act as showcases for some types of goods that shoppers are less willing to buy without the “touch and feel” experience, Amazon plans to take orders then deliver to consumers’ homes rather than to stock goods in the showcase stores.

Perhaps Amazon has plans to use the Whole Foods stores in new ways such as the prototypes of the drive-up grocery stores it is building in Seattle.  More likely Whole Foods will utilize some type of AmazonFresh Pickup.  Instead of last mile delivery, your groceries would be delivered to the trunk of your vehicle.

This would help to solve some of the major problems in retail grocery.  The desire for fresh, less processed foods is problematic as these perishable foods have a shorter shelf life.  Add to this consumers’ desire for locally sourced perishable food and fast delivery and one thing becomes apparent, retailers need to move the goods closer to the consumers.  With a low profit margin on food goods, inefficiencies, extended shipping and other costs make an already complicated problem even worse.

Amazon’s $13.4 billion acquisition gives a giant shove against the shoulders of Walmart, which has positioned itself to expand its strength in the e-commerce sector after showing a 64% rate of growth in the United States in e-commerce sales in the latest quarter. Currently, Walmart offers 50 million items through its website, increased from 35 million the last quarter.

What Amazon brings to solve the problems of low margin grocery, perishable food sales, e-commerce and brick and mortar competition is innovation and a healthy dose of technology.  

Already Amazon has earned its innovation “chops” by bringing a fresh perspective to omnichannel retail and plenty of investment in supply chain technology. The ability of Amazon to re-engineer new solutions is transformative and has had a significant effect on the supply chain and logistics industry for years.

Finding out how Amazon combines Whole Foods physical stores with their famous Amazon Prime fast free delivery will undoubtedly keep us on the end of our chairs (at least it will me…).  Stay tuned.

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