“Greedy Bastards”: Amazon, Whole Foods Deal “Changes Everything”
Clearly, Amazon has decided to crush brick-and-mortar grocers the same way it's crushed brick-and-mortar everything else.
The blockbuster $13.7 billion Whole Foods acquisition was obviously the biggest story on the Street today and although it is indeed something of a bombshell, we're not entirely sure why everyone is surprised. After all, it's not like we didn't know that Jeff Bezos wanted into this market.
"Amazon and Whole Foods weren’t always seen as obvious partners, but John Mackey, Wh
And today you could sell 42/43 spreads for .80$
Sure there’s a stock angle and money to be made in the trade. However, concluding that AMA is going after the retail food/grocer market is probably thinking wrong headed technically about the reasons for the WFM purchase and it also fails to understand both the grocer business requirements and how AMA has to fit that business and its requirement into its very different online model – both technically, fiscally and physically.
A little different view: The full-line food store – grocery business is different from dry goods only – which is Amazon’s fulfillment center mainstay. The big difference in a real grocery store is that much of the inventory is dominated by perishables and how successful you are in turning/selling those perishables before they – well – perish, determines your profits.
If Amazon is going to compete seriously in the food business it needs a perishable outlet – for stock that can’t be pushed through the Amazon fulfillment centers (generally without at-scale refrigeration). Having the WFM outlets and distribution infrastructure, plus existing perishable buying power/scale lets them economically experiment with perishable sales – while having a tool in managing their perishable losses through B&M retail sales. In other words to have the required economy of scales-in-perishable buying and the sale of perishables by the use-by date AMA needed a scaled brix-and-mortar assist. This allows them both buying and sales scale in perishables to deepen their probe into foods. It also allows them an opportunity to control the data and technology that they develop in the process.
Unfortunately, short term perishables such as fresh meat/seafood, fruits and veggeies will eat AMA’s lunch if they aren’t very careful – even with WFM as a side door. Much of AMA’s online food success will depend on how they approach frozen food handling and the new technologies they develop to integrate perishables and their success in delivering them online.
I wouldn’t interpret the WFM purchase as AMA deliberately competing in B&M food sales (in reality AMA now owns pretty much all of retail sales – but perishable foods), but we should view the WFM purchase as rather a necessary component/tool in developing economically effective online food sales – beyond dry goods and especially into premium perishables – not so much discount sales.
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I’d also add that Amazon had entered and left the wine business twice (very complicated for a national presence due to varied state laws). They re-entered again in 2012. WFM could also help them to increase their visibility, footprint and fulfillment in this market and challenge Costco as king of the mountain in wine sales.
i’ve also entered and left the “wine business” multiple times