A game changer. That’s what ecommerce and business experts are calling Amazon’s recently announced acquisition of Whole Foods. Amazon has already been leading in ecommerce packaging, especially for durable goods. How will this venture change the retail landscape, especially for fresh foods and beverages? And what might it mean for product packaging?
Packaging Digest asked a trio of analysts (see their bios at the end of the article) for their opinion on the deal and its probable packaging impacts:
• Scott Deutsch is the president of Ehrhardt + Partner, North America, a global provider of warehouse management systems (WMS)/warehouse control systems (WCS)/voice solutions.
• Stephen Kaufman, is the chief product officer of BLUE Software, a label and artwork management solutions provider.
• Dan Wilkinson is chief commercial officer of 1WorldSync, a multi-enterprise, global product information network with offices in the Americas, Asia Pacific and Europe.
Dan, you’ve said you think this acquisition of a trusted grocery partner could place Amazon as the clear market leader in e-grocery. Why is that so important?
Wilkinson: Trust has been one of the biggest barriers for the grocery industry in the shift online. Historically, consumers have been adamant in their desire to touch and feel a perishable food item before purchasing it, and only in the last couple of years have organizations been able to slowly gain consumer trust to purchase perishables online.
Whole Foods’ has built its brand on a reputation of trust, using its organic-only products and detailed product content approach to drive loyalty with its customers. With this acquisition, Amazon absorbs that reputation of trust and gains access to Whole Foods’ loyal customer base. Other retailers in the online grocery industry have struggled with this, including Amazon, due to its position as a marketplace, not a pure-play retailer.
Along with Whole Foods’ brand reputation, Amazon gains 431 new fulfillment and distribution centers across the nation, giving them greater power to improve fulfillment of grocery products and improve trust to acquire new grocery customers. With Whole Foods’ brick-and-mortar stores and Amazon’s powerful ecommerce technology, the company has effectively solved the last-mile fulfillment barrier that has prevented widespread consumer and retailer adoption of omni-channel grocery.
Industry experts have speculated that Amazon’s purchase of Whole Foods is a strategic way of expanding Amazon’s distribution of fresh foods bought through ecommerce. What do you think and why?
Kaufman: Amazon’s purchase of Whole Foods might indeed be a method for expansion of fresh foods distribution, but the move goes much farther than that.
At the heart of this acquisition is Amazon’s pursuit of a richer and deeper experience with its customers.
You can only develop so much of a relationship with a web page and a box. The consumer is looking for engagement that can best be served in a crafted environment like a store. Much like Apple, Amazon realizes that a store can become an emotional destination, and Whole Foods already has developed this type of relationship with shoppers: 460 stores in the U.S., Canada and the United Kingdom, and $14 billion is more than an experiment.
Amazon also realizes that eventually Walmart and others will catch up with online retailing; Amazon wants to move into Walmart’s space to make it defend its home turf.
Add to this notion the idea that Millennials are increasingly more aware of where food (and especially fresh food) is sourced. Whole Foods’ supply chains only span a few counties for some products based on “buy local” sentiments. Amazon will find a way to bind these micro-chains to online fresh shopping, while simultaneously leveraging the in-store experience with the same consumer.
Expect to see a new blended experience between online and retail where online orders can be picked up at Whole Foods, and items ordered and purchased at Whole Foods can be delivered through Amazon’s growing delivery network. Shop with your friends, go to a movie and have all your groceries arrive tomorrow morning at your respective homes.
All makes for interesting and compelling combinations.
Wilkinson: I have no doubt that this was a strategic move by Amazon to improve its ability to sell fresh foods online. The two barriers that Amazon need to get over to penetrate this market were consumer trust and fulfillment. They solved both by buying Whole Foods.
Amazon is now in the position to leverage Whole Foods’ 431 existing stores across the U.S., which gives them valuable fulfillment centers in highly populated areas and the ability to distribute fresh food quickly and reliably. Amazon could also use these stores as additional touchpoints if they wanted to sell other product categories outside of food in Whole Foods locations.
Additionally, Amazon can now leverage Whole Foods’ reputation for trust and authenticity, which has been a key driver in Whole Foods’ ability to grow and maintain such a loyal customer base. Amazon’s choice to purchase Whole Foods instead of another grocery chain was strategic—it saw the necessity of consumer confidence in the food industry and chose the most trusted grocery chain on the market to help it grow its online grocery presence.
Deutsch: I believe the strategic value in making the acquisition of Whole Foods by Amazon is really about building out its “local operational distribution model” to effectively compete with Walmart. Whole Foods is its “testing playground” to learn how to address the complex frozen and chilled grocery offerings.
In Whole Foods, Amazon obtains a high-end grocery chain with actually a limited market footprint, but room probably for greater operating efficiencies and thus the potential for lower and more competitive market pricing. When you compare the market footprint of Walmart’s 150+ distribution centers to the 11 distribution centers of Whole Foods, the scale of an Amazon/Whole Foods just does not compete effectively with Walmart.
Map shows the location of Walmart’s 150+ distribution centers in the U.S. Source: MWPVL Intl.
NEXT: The packaging implications?