Business

Amazon should make Whole Foods affordable. Who will it put out of business?

Whole Foods could get cheaper after the Amazon acquisition closes.
Whole Foods could get cheaper after the Amazon acquisition closes. jleonard@newsobserver.com

I love grocery stores. The big ones, the small family-run ones and everything in between. It’s a natural result of having a father in the wholesale grocery business. In fact, my father wound up becoming president of the Wholesale Grocers of America. His father built a grocery business from scratch in a small Illinois town. You could say groceries run in the family.

So what’s this about Amazon buying Whole Foods? My first thought was that this was a disruptive move – and it is – but if you think about it, the grocery business gets disrupted all the time. Do you know who the biggest supermarket chain in the country is? Walmart! And by no small margin, coming in at over 25 percent market share, three times the market of Kroger, the runner-up. Whole Foods, by the way, weighs in at 1.6 percent with its more than 400 stores.

If Walmart can sidle into supermarkets, which it began to do by offering full lines of groceries in the 1990s (Target is also a player in this) then traditional grocery stores already have their hands full trying to stay competitive. Now Amazon has put up $13.7 billion for Whole Foods, whose prices are not known for being at the low end. I expect big changes, not the least of which will be a sudden move toward making Whole Foods goods more affordable.

What Amazon brings to the table is a superb gift for data mining, meaning the company can see what you’ve been buying over the years and make projections about what you will want to buy next. The company has already made a sortie into groceries through its Amazon Fresh offering, which delivers in selected cities. Consider it a warm-up to what is happening now.

What are customers going to get out of this? Amazon will surely use its Prime service as a reward-based incentive to buy groceries. And while you wouldn’t think that high-end Whole Foods would be a natural for Amazon, given that Bezos is going after middle-income shoppers, Whole Foods itself has itself been trying out a line of stores labeled 365 as a way of getting lower-priced items into play and turning around a long-running sales slump.

We’ll surely see experiments and innovation in the grocery shopping experience. Amazon is probably going to alter the checkout model, which could easily enable payment through smartphones. Ideally, you wouldn’t even have to stop at a checkout line, with your phone tracking your purchases and the bill showing up in your Amazon Prime account.

But so far Amazon is saying no to no-checkout technologies, claiming Whole Foods cashiers will not be facing layoffs. We’ll see how that plays out when the deal closes later this year.

I see this as a major win for Amazon, which acquires access to delivery points all over the country and can begin to explore large-scale attempts to deliver directly to the home. Amazon’s warehouse network continues to grow, but it has not yet developed the refrigerated warehouses needed for a major move into grocery retailing. Dealing with perishables is a new ball game compared to books and computer parts in a battle that will be fought over freshness. Whole Foods, then, is all about mastering this new supply-chain challenge.

And don’t forget the Internet of Things, which is increasingly bringing automation into the so-called smart home. Digitally connected appliances like refrigerators can connect directly to any Amazon delivery options to make keeping the pantry stocked a painless task.

Books, music, clothing and now groceries – is there anything Amazon isn’t moving into? Consumers will benefit as prices fall in these competitive wars, but concern over Amazon’s reach isn’t going to go away. Anyone who has seen what a single big box store can do to disrupt a small town’s local businesses has to ask what Amazon can do to much larger competition. Tough days ahead for the small, independent grocer, like my grandfather.

Paul A. Gilster is the author of several books on technology. Reach him at pag1877@gmail.com

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