Strategy: Here's how Amazon could upend the grocery market (AMZN, WFM)

Amazon announced on Friday that it will acquire Whole Foods for $13.7 billion, giving the online retail titan a large store network and a foothold in the $600 billion US grocery industry

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Amazon announced on Friday that it will acquire Whole Foods for $13.7 billion, giving the online retail titan a large store network and a foothold in the $600 billion US grocery industry, Business Insider reports.

The massive acquisition raises the possibility that Amazon could disrupt both the grocery market and the in-store shopping experience more broadly.

Whole Foods’ 465 stores in North America and the UK will give Amazon the brick-and-mortar presence it needs to succeed in grocery retail. While Amazon has been building up its AmazonFresh online grocery delivery service, it needs a physical presence to truly tackle the grocery segment, as online grocery sales still only make about 4% of the total US market, according to Nielsen.

To do this, Amazon has been developing different grocery store concepts, with unconfirmed media reports indicating the company wants to build a network of 2,000 grocery stores across the US. The acquisition would go a long way in helping Amazon become a significant player in the grocery market, and reports have already emerged suggesting a competitor might try to outbid Amazon’s offer to prevent its entry.

Amazon poses such a significant threat to other major grocers because it could use new technologies to cut costs and offer dramatically lower prices.

• The company already has a well-deserved reputation for beating the competition on price, as it can take a loss on selling items because of its highly profitable cloud business.
• In the grocery segment, Amazon could cut costs by implementing new technologies like those it is testing for its Amazon Go store format. The store concept uses sensors and machine learning algorithms that track which items customers pick up as they move about the store. The products are saved in the Amazon Go app, and customers’ orders are charged to their Amazon accounts when they walk out.
• Such technology that automates the cashier line could allow Amazon to save on labor costs — a notoriously high expense for grocers — and pass those savings on to its customers.

Moreover, the technology could allow Amazon to redeploy some staff from behind the checkout counter to help service customers in the shopping aisles. This would enable Amazon to distinguish its in-store experience both by using cutting-edge technologies and providing high-level customer service, much as Apple has done with the Apple Stores. Combining such a reputation with lower prices would make Amazon a formidable force in the US grocery market.

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Amazon announced on Friday that it will acquire Whole Foods for $13.7 billion, giving the online retail titan a large store network and a foothold in the $600 billion US grocery industry Read Full Story