| U.S. News & World Report | - |
Customers
drive past this Whole Foods Market store in Jackson, Miss., Friday,
June 16, 2017. Amazon is buying Whole Foods Market in a deal valued at
$13.7 billion, uniting the on-line giant with the grocery store chain
that touts fresh organic foods.
Amazon Deal for Whole Foods Could Bring Retail Experiments
Amazon is buying Whole Foods in a bold move into brick-and-mortar retail.
June 16, 2017, at 5:35 p.m.
Customers drive past this
Whole Foods Market store in Jackson, Miss., Friday, June 16, 2017.
Amazon is buying Whole Foods Market in a deal valued at $13.7 billion,
uniting the on-line giant with the grocery store chain that touts fresh
organic foods. (AP Photo/Rogelio V. Solis) The Associated Press
By ANICK JESDANUN, AP Technology Writer
NEW YORK (AP) — Online retail giant Amazon is
making a bold expansion into physical stores with a $13.7 billion deal
to buy Whole Foods, setting the stage for radical retail experiments
that could revolutionize how people buy groceries and everything else.
Amazon could try to use automation and data
analysis to draw more customers to stores while helping Whole Foods cut
costs and perhaps prices. Meanwhile, the more than 460 Whole Foods
stores in the U.S., Canada and the U.K. could be turned into
distribution hubs — not just for delivering groceries but as pickup
centers for online orders.
"The conventional grocery store should feel
threatened and incapable of responding," Wedbush Securities analyst
Michael Pachter said.
Moody's lead retail analyst Charlie O'Shea said
the deal could be "transformative, not just for food retail, but for
retail in general."
Walmart, which has the largest share of the U.S.
food market, has already been pushing harder into e-commerce to build
on strength in its stores and groceries. It announced Friday that it's
buying online men's clothing retailer Bonobos for $310 million,
following a string of online acquisitions including ModCloth and
Moosejaw.
But if Amazon can be the one-stop shop for
everything — groceries had been one of the key missing elements —
customers would have even less of a need to go to Walmart or elsewhere.
___
TOUGH TIMES FOR GROCERS
Amazon already offers grocery-delivery services
in five markets, but analysts say expansion is tough because its current
distribution centers are set up for dry goods, not perishables. Just
two years ago, Whole Foods CEO John Mackey told Bloomberg BusinessWeek
that Amazon's foray into grocery delivery would be "Amazon's Waterloo."
But it was Whole Foods that fell behind as
shoppers found alternatives to the organic and natural foods it helped
popularize since its founding in 1978. Whole Foods has seen its sales
slump and recently announced a board shake-up and cost-cutting plan amid
pressure from activist investor Jana Partners.
Groceries are already a fiercely competitive
business, with low-cost rivals like Aldi putting pressure on traditional
supermarket chains and another discounter, Lidl, opening its first U.S.
stores just this week. Whole Foods itself had launched an offshoot
chain named after its "365" private label brand in a nod to the
popularity of no-frills chains.
The Amazon-Whole Foods combination, expected to
close by the end of the year, could put even more pressure on those
chains and other big grocery sellers.
"Dominant players like Walmart, Kroger, Costco
and Target now have to look over their shoulders at the Amazon train
coming down the tracks," O'Shea said.
___
TECHNOLOGY TO THE RESCUE
Amazon could try to cut operational costs at
Whole Foods by using the same types of robots that already move
inventory around at its e-commerce fulfillment centers.
The company also has been testing sensors at a
convenience store in Seattle to track items as shoppers put them into
baskets or return them to the shelf. Shoppers skip the checkout line,
and their Amazon accounts get automatically charged. Gartner retail
analyst Robert Hetu said Amazon could bring pieces of that to Whole
Foods to further cut costs.
Both companies said there will be no layoffs,
but they did not respond to other questions about Amazon's plans for
Whole Foods. Whole Foods will keep operating stores under its name. In
an email to customers, the company said it planned to maintain the same
standards under Amazon, including bans on artificial flavors and colors.
Whole Foods, often derided as "Whole Paycheck"
for its high prices, could see its reputation change if Amazon, a master
at undercutting its brick-and-mortar rivals, passes any savings from
automation to customers.
"This might be an opportunity for consumers who
have felt that Whole Foods is inaccessible," said Lauren Beitelspacher, a
marketing professor at Babson College in Massachusetts.
___
BEYOND FOOD
Amazon could also get a better picture of
customers by marrying data from Amazon and Whole Foods' loyalty
programs. Hetu said Amazon could make pertinent offers to attract
shoppers of one but not the other, or get shoppers of both to buy more.
Ryne Misso of the research firm Market Track
said a customer who buys fresh fruit regularly at Whole Foods might be
offered a deal on blenders and serving bowls. Or someone who buys
granola bars monthly from Whole Foods and paper towels every other week
from Amazon might be offered the items in a single shipment, delivered
to the door.
The Whole Foods deal could also get more people
to try grocery delivery, something many shoppers have been hesitant
about because of concerns about meat and produce quality. Pachter said
Amazon might get customers over those fears if they know the delivered
items are the same as those they would find at the local store.
On the flip side, Amazon could use Whole Foods
stores as pickup locations for deliveries, an option Amazon already
offers in many cities by installing lockers at 7-Eleven and other
retailers.
"Instead of deliver to my home, why not just
come down here? I'm shopping here anyways," shopper Alina Gura said at a
Whole Foods in West Hartford, Connecticut.
That could help Amazon cut shipping costs and
give the company opportunities to sell even more products once in the
store. The stores could also showcase gadgets such as Kindle e-readers
and Fire tablets. One day, these stores might even serve as launch
centers for Amazon's delivery drones.
___
AP Retail Writer Anne D'Innocenzio and Business
Writer Stan Choe in New York and writer Susan Haigh in West Hartford,
Connecticut, contributed to this report.
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