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Two years have passed since Amazon announced it was acquiring Whole Foods for $13.7 billion. The news that Amazon was planning on competing in grocery in earnest worried some given its history of disruption in retail, but thus far it’s been unable to dominate the industry.
Here’s what it means: In-store, Whole Foods’ performance hasn’t taken off under Amazon, and online, Amazon’s presence roused competitors to action so they could match it.
- Whole Foods’ in-store revenue has largely stayed flat following its acquisition despite changes made by Amazon. Amazon’s physical retail segment, which is largely comprised of Whole Foods’ in-store sales, has posted quarterly revenue between $4.2 billion and $4.6 billion in Whole Foods’ six full quarters with Amazon. The e-tailer’s added perks for Prime members, introduced discounts, installed Amazon Lockers, and more, but they haven’t propelled in-store sales to new heights.
- Rather than coming in and dominating online grocery, the threat of Amazon led to competing grocers taking e-commerce seriously and becoming stronger competitors online. Acquiring Whole Foods allowed Amazon to bolster its online grocery offerings, both for delivery and pickup at stores, making it a more formidable player in the space. But in the months and years after the acquisition announcement, top grocery players like Walmart, Kroger, Target, and Aldi have invested in their own online grocery capabilities or partnered with third parties like Instacart to compete with Amazon. This has prevented Amazon from using Whole Foods to build a position in online grocery that’s comparably dominant to the one it holds in overall US e-commerce.
The bigger picture: Whole Foods has two characteristics that likely hinder its ability to overtake the grocery industry, which may be why Amazon is opening a new grocery chain.
Whole Foods’ relatively small footprint and generally high price point will likely be permanent obstacles to Amazon’s online grocery efforts.With less than 500 US Whole Foods stores, it’s difficult for Amazon to reach most consumers and offer quick and convenient fulfillment options; competitors like Walmart don’t have this issue, considering the Arkansas-based retailer has over 5,000 stores. And with a reputation for high prices, some consumers won’t or can’t shop with Whole Foods. These issues mean that Whole Foods isn’t well positioned to become a leading grocer nationwide like Amazon is the leading e-tailer in the US. Amazon is planning on opening a new grocery chain as soon as this year that will offer lower prices, and if Amazon can open enough locations or expand its grocery fulfillment network enough, it may be able to dominate grocery after all, but it won’t be able to purely through Whole Foods.
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See Also:
- Amazon is shuttering its food delivery service
- Pop-up shops are paying off for retailers
- Walmart will begin to test in-home grocery delivery this fall
Source: Business Insider – dkeyes@businessinsider.com (Daniel Keyes)