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What Amazon's Whole Foods move means for retail

21st Jun 2017
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Free Download: Click here for a complimentary copy of Forrester’s Quick Take to understand what the Amazon/Whole Foods acquisition means for the rest of retail.  

Whole Foods’ brick-and-mortar expertise combined with Amazon’s digital prowess is a one-two punch that will give retail executives more sleepless nights. With its $13.7 billion acquisition of Whole Foods, Amazon is significantly upping its game from Amazon Fresh to premium brick-and-mortar grocery retailing. 

Here are three initial takeaways on what this acquisition means for the rest of retail: 

To thrive in grocery, Amazon needs a keystone: the local store. Grocery is a high-frequency shopping experience. Whole Foods’ stores give Amazon a new store platform for deeper engagement across all its selling categories. Amazon can lock in its national distribution and logistics mastery with a local “place” in a way that other retailers will struggle to replicate. Now Amazon can tie into those weekly (or multi-weekly) grocery runs with add-on products and services further deepening their reach into customers’ wallets. 

Amazon knows that to win at brick and mortar, Retail Theater is paramount. Whole Foods locations are destinations where the idea of “Retail Theater” still thrives. Consumers go to Whole Foods to shop but also to discover new foods, attend wine tastings, pick up prepared foods, and enjoy a cup of organic coffee. Whole Foods can be credited with turning Americans on to arugula, almond milk, and probiotics. The idea of Retail Theater and discovery is badly missing in most brick-and-mortar retail shopping experiences. Amazon is now getting private lessons from the master. 

Whole Foods shoppers will get the Amazon digital experience. Over the long haul, expect Amazon to inject much needed digital chops into Whole Foods’ fledgling digital business. We expect to see Amazon Fresh pickup and delivery services fulfilled by Whole Foods sooner than later. We also expect to see special discounts at Whole Foods for Amazon private label card holders and Prime members. This injection of new customers should immediately be the shot of vitamin B Whole Foods desperately needs – and a shot across Walmart’s’ bow. Additionally, expect to see AmazonGo digital store technology coming to a Whole Foods near you in the future, further combining an already great store experience with digital. 

Forrester believes this foreshadows acquisitions to come. Whole Foods only has 450 stores across 42 states, which does open myriad opportunities for Amazon to reach a valuable demographic in their local neighborhood – but it does leave much of the US wide open. We expect Amazon to make more acquisitions that have deeper reach into middle America and extend its attractiveness to new demographics: think Wegmans, Trader Joe’s, and other high-end regional grocers. 

This post is authored by Brendan Miller and Brendan Witcher. Brendan Miller is a principal analyst at Forrester, serving eBbusiness & Channel Strategy professionals. Brendan Witcher is a principal analyst at Forrester, serving eBbusiness & Channel Strategy professionals.

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