Why is Amazon so deeply interested in grocery? Grocery is arguably the hardest category in retail, yet Amazon, a technology company with e-commerce experience, continues to throw spaghetti at the wall regarding its retail strategy.
When Amazon bought Whole Foods Market in 2017 for $13.7 billion the expectation was that Amazon would solve grocery. Six years later, Amazon has churned leadership of its retail businesses, have open and closed AmazonFresh and Amazon Go without any real bottom line impact being shown.
Why is grocery so important? Its the largest retail category (worth over $1 trillion annually), has repeat purchasing behavior, and is very dependent on supply chain efficiency. Retailers need planes, train, trucks and warehouses to move goods from manufacturers/producers to warehouses which then move them to stores. Whoever wins in grocery whether its Walmart, or a combination of Kroger/Albertsons who are currently in antitrust talks with regulators - the answer is not Amazon and that scares them.
Why does Amazon own Whole Foods Market, but its opening AmazonFresh and AmazonGo stores? Is that because Amazon does not want customers to know they are shopping at an Amazon owned chain (Whole Foods Market) or is it to get closer to customers who can use these stores for returns? Why has Amazon not rebranded Whole Foods Market? To be clear the old customer demographic that made Whole Foods its revenues is no longer shopping at the stores - why? Amazon has changed procurement and have changed the selection in stores to be closer to other chains such as Walmart.
Walmart owns over 25% of US retail and they are entering Amazon’s business model faster than what Amazon can profitably solve retail. Amazon cutting staff from AmazonFresh stores is a temporary solution to a big problem - “What is Amazon’s grocery strategy?”
How does Amazon solve retail? More [technology]( Amazon to launch pay-by-palm technology at all Whole Foods stores by year-end), better people with retail experience, or something else?
On the technology side, there have been the rumours that Amazon is interested in Ocado (and Amazon is at best a small side note in grocery in the UK–Whole Foods, home delivery, and Go; no Fresh).
But I am not sure I believe Amazon needs to buy Ocado for tech (although Ocado has good tech and recently bought more from Shopify), Amazon could probably develop similar for less cost or take over one of the emerging MFC hardware suppliers more cheaply.
It is a conundrum. Food is a tough low rent business at any point in the supply chain. distribution is also a tough low rent business (witness the slow but steady growth of Amazon in the last mile, for their own sales plus others, and that’s a well worn playbook in the UK for former catalogue retailers in decades past; I even suggested internally to Tesco they did similar when I was there at the height of their ambitious expansions, before Amazon started it; and it was seriously considered).
Buying expertise in retail would be difficult; acquiring a good at scale retailer or two is likely to be complicated by a re-emergence of anti-trust enforcement.
I would say if Amazon wanted to capture more share of wallet, they need to enter banking:
- A new payment/credit card (offering installment payments cf Klarna). Their owns scheme cf Discover to avoid paying rent to Visa, Mastercard, Amex. Make this easy to integrate to websites, but (critically) also make the card/account eligible to receive salaries by direct bank transfer.
- And a complementary business/trade account for 3P sellers, which supports international payments more easily and at lower fees.
On a side note, there is a business that Amazon could enter that suits their scale and capabilities, and get at least a first mover advantage:
Motor fuel bunkering, at a consumer level. Allow consumers/small businesses to pay up front for motor fuel (and maybe home heating oil, bulk LPG gas) to lock in a price for a number of gallons/litres, and then draw from their “bunker” using a fuel card at the filling station. (This type of scheme is available to some businesses in the UK in a small way)
This would be a virtual, financial business; Amazon buying futures contracts to create a price hedge which they then “sell” on to consumers in small portions to use on demand. It’s just the physical fuel card issue and acquiring that needs to be solved (probably by an acquisition). The fuel card could also be used as a payment card for ancillary purchases at the filling station.
This is the saddest part of the whole thing. What was good about Whole Foods (freshness, uniqueness, even at a high price) has been destroyed.
Not clear that Amazon will solve this problem at all. Ultimately I’m left thinking that for Amazon to solve this problem might kill what makes Amazon unique.
Physical retail isn’t about technology whiz-bang.