Digital and Physical Merge as Amazon Purchases Retailer Whole Foods

There is now one primary topic in retail hallways: Amazon’s $13.7 billion purchase of Whole Foods.

The obvious observation:  it’s an industry Big Boom.  Retailers will mark history from this event.

But we can only guess the implications.

Yes, the Whole Foods purchase will provide Amazon with 400+ points of local distribution.  Two core unified commerce capabilities -- click-and-collect and click-and-deliver – will immediately become normative.

Yes, grocery store shopping – unchanged in some many ways from the broad-scale birth of supermarkets in the 1940’s and 50’s – is due for a big disruption.  It’s time-consuming and, in the eyes of digerati, broken.

Amazon Whole Foods retailer market storefrontYes, the current Amazon experimentation with fresh food in Europe and elsewhere shows a model that can be adapted across multiple formats.   Yes, the experimentation at the Amazon Go store in Seattle suggests a new path for what store retailing can be – free of so-called “friction,” and one quite light on hourly-paid employment.

But let’s pause and look deeper for a moment.

  • There’s a smart piece of analysis on the deal by Derek Thompson in The Atlantic.  His thesis: there’s a center of shopper satisfaction and delight, a new retailing mid-point between pure-play digital and traditional brick-and-mortar physical.   The Amazon-Whole Foods deal (and Alibaba’s investments in Suning and Intime) accelerates the contest of who gets there first.    Regardless: we’re now – as colleague Rachel Mushahwar would say – firmly in the "phygital" world.
  • Another impressive commentary comes from Farhad Manjoo of the New York Times.  Manjoo’s key point, one that echoes Thompson’s: this is not about technology, nor stores, nor distribution points on a value chain network.   This, ultimately, will be about sharply bending the FMCG industry toward the desired decision journey of today’s digital shopper.

Other observations:

  • We can expect that this deal will also accelerate the shift from batch-based consumer behaviors, business processes and analyses to a world that is decided, analyzed and delivered in-stream. Watch the dominoes fall:  audio, video, ordering, and shipping . . . and next, data transparency, operational decision-making, services creation and delivery.  In last week’s news, we heard again the death rattle of the traditional, that’s-the-way-Grandma-did-it shopping list.
  • We can expect that someone, somewhere – most likely in a lab in Seattle -- will within 12-18 months figure out highly accurate, cost-effective, standards-based item-level identification for FMCG products. Metals, liquids, in-depth.   At a TCO a CFO can swallow.   Perhaps it’s already happened.
  • We can see that the operative industry definition of a loyalty-CRM program is now It’s no longer about “personalized offers” in the shape of coupons or redeemable points.   It’s now all about a wide range of on-demand services, from music to information to conversational commerce, services which provide lifestyle value to the shopper.   In The Atlantic article, Thompson speaks to the extraordinarily sticky value proposition (and profitable demographic) of Prime and points out that convenience today is as much a monetized retail product as a bag of frozen peas.
  • While keeping an eye on the Amazon-Whole Foods developments, those in the U.S. and Europe would also be wise to look to China for ideas and inspiration. Our friends there are often a half-generation ahead -- note the digital-physical partnerships, the investment in innovation (from labs in Silicon Valley to data science), and the rapid roll-out of unified commerce capabilities.
  • And, while keeping an eye on the Amazon-Whole Foods developments, we can expect that the more immediate impact to the US and UK grocery industries will be the growth of Lidl. In the UK, the German-owned brand now owns roughly 5% of the market, with revenues reported up nearly 18% year-on-year.  In the US, -- just a day before the Amazon-Whole Foods announcement – Lidl opened stores in Virginia, North Carolina, and South Carolina.

A final thought:

Let’s go back to Manjoo.  These words have stayed with me:

. . .  if there’s one thing I’ve learned about Jeff Bezos, Amazon’s founder and chief executive, after years of watching Amazon, it’s that he doesn’t spend a lot of time predicting future possibilities. He is instead consumed with improving the present reality on the ground, especially as seen through a customer’s eyes.

Were we all that smart.

We’ve just entered the next era.  Buckle up.  Here we go.

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Jon Stine

About Jon Stine

Global Director Retail Sales at Intel. Jon Stine leads Intel’s global sales and strategy for the retail, hospitality, and consumer goods industry sectors. His CV includes leadership of North American retail consulting practice for Cisco Systems, and a prior stint at Intel, where he founded the company’s sales and marketing focus on the retail industry. His perspective on technology’s value in the industry has been shaped by advisory and project engagements in the United States, across the European Union, and in India, Australia, and the People’s Republic of China, and from 15 years of executive sales and marketing experience in the U.S. apparel industry, working with the nation’s leading department and specialty stores. At Intel, his current areas of research and engagement include the future of the store in this new digital age; how and where retailers turn data into competitive advantage; the role of technology within the new cross-channel shopper journey, and, the critical business and IT capabilities that industry success will demand going forward.