ANALYSIS: The on-line retailing giants long quest to become a major player in the grocery industry is about to come to fruition in a very big way with its proposed $13.7 billion buyout of Whole Foods
Amazon has been trying to conquer the grocery business for a decade. At first, Amazon Fresh was only available in a few places, primarily in spots where the company already had a major presence, such as Seattle.
But eventually it grew, and now you can get fresh groceries from Amazon in major metro areas, including the Washington, DC, suburbs where I spend most of my time. That means that I can now buy eggs, butter and milk from Amazon and have it delivered within two hours.
But there are limits. If I’m not in a major metro area, I can’t buy from Amazon Fresh at all. When I can buy from Amazon, the price can be substantially higher than what I’d find a local grocery store. Naturally sometimes, I need an item a lot sooner than two hours from now.
Amazon Whole Foods
A lot of people share my concerns about buying groceries from Amazon. Many people still want to examine food items or read labels before buying, just as they want to feel the fabric of suits, or want to see the screen of a new television before they buy.
These concerns, along with many others, help explain why Amazon has decided to spend $13.7 Billion in cash to buy the Austin, Texas, food retailer Whole Foods. But there’s more to it than just that.
Perhaps most important factor is that companies’ customer bases share similar demographics, largely higher income shoppers and millennials who are technologically savvy.
There are other synergies as well. Buying whole foods 431 stores gives Amazon a physical presence in far more communities a lot faster than it could ever accomplish on its own. It also gives the Amazon two things it needs in the grocery business, grocery marketing knowledge and access to suppliers.
Whole Foods has years of experience selling high-end food products at prices that make them profitable and the company can help Amazon by teaching the company how to buy and sell items that are perishable.
Whole Foods also has long established relationships with quality food purveyors that are close to the sources of supply. The company can, for example, buy fresh organic strawberries directly from the farmer who grows them.
But there’s more to the acquisition than that. By having those 431 stores, Amazon now has a way to allow customers to pick up their purchases almost immediately. While other stores, including the Kroger grocery chain, already have the ability to deliver online purchases to curb-side, it can take a couple of hours. Amazon now has the potential to do this much more quickly.
Originally published on eWeek