Amazon’s recent acquisition of Whole Foods has prompted a new outlook on the classic brick-and-mortar structure. Online stores are now more actively seeking to gain presence in brick-and-mortar stores just as brick-and-mortar stores are seeking to have a bigger presence online.
Amazon’s $13.7 billion purchase of Whole Foods shows an e-commerce giant that is willing to dive into the brick-and-mortar world of retail, an area the e-commerce giant famously disrupted.
“We finally have a giant internet group deciding that they need retail locations. And hopefully everyone starts to realize that it really isn’t online that’s in, you need to be brick-and-mortar and online,” says John Jackson, associate vice president of Colliers International in Phoenix.
Jackson says that the community, as a whole, is excited to see someone pushing away from the online only, and embracing retail stores.
Deb Gabor, branding expert, CEO of Sol Marketing doesn’t think the merger is entirely about grocery stores. The recent purchase could mean a disruption to both the consumer packaged goods and grocery categories, Gabor says
“This new combined entity will have the power to put pressure on other retailers directly and indirectly and we could see a big shift in consumer shopping habits,” she says
Gabor adds she is interested to see what Amazon can do with customization and individualization and how they might bring that to brick-and-mortar retail.
Just opposite of Amazon buying out Whole Foods, Walmart recently bought Bonobos for an online presence, among other companies.
More Whole Foods in Arizona?
Arizona is home to one of the most competitive grocery markets out there, but because there is not a lot of available land for large grocery stores, making it a tough market to get in to, Jackson says.
Whole Foods is very particular about where they place their sophisticated-grade grocery stores, which are typically in areas with higher demographics. There are fewer opportunities for that in Arizona, Jackson says.
Prior to its Whole Foods purchase, Amazon has been unsuccessful in finding a location for one of its experimental retail locations in Arizona, Jackson says.
More Whole Foods locations are being added, since the acquisition. And Whole Foods will probably add more locations where it wasn’t able to get into before the purchase, now that Whole Foods has more resources, Jackson says.
Amazon’s extensive delivery capabilities give Whole Foods a new opportunity to differentiate and bond with customers they previously didn’t have access to. This acquisition and others similar so far haven’t changed the brand yet as it is too early to tell.
But there are still things to pay attention to at Whole Foods.
“I’d be watching both the Amazon Basics brand and the Whole Foods 365 Brands very, very closely to see whether those are the brands that the company will use in a foray to disrupt (consumer packaged goods),” Gabor says.
Whole Foods recently announced it will be adding a Whole Foods 365 branded location to Tempe as part of the upcoming The Local mixed-use development. The new location will be Whole Foods’ 11th location in Arizona, and will be built near Downtown Tempe at University Drive and Ash Avenue.
Whole Foods Market 365 stores focus on being an affordable and convenient shopping destination. The design, technology and product selection at Whole Foods Market 365 stores hope to provide a streamlined and modern experience for customers, while still adhering to Whole Foods Market’s roots.
“Our 365 stores deliver the same quality that our customers have come to expect, but in a convenient and fun new format that provides exceptional value,” states Patrick Bradley, president, Whole Foods Market Southern Pacific Region.
Jackson believes Amazon might adapt some of its plans from its retail and distribution locations at its newly purchased Whole Foods locations.
One such change could mean downplaying the existing Whole Foods model, merchandising, and adding an Amazon store, says Jackson. Essentially, this would be creating Amazon distribution hubs across markets.
Gabor guesses that if they were to make other changes they may also expand more online services to bring hard and soft goods and media directly to people’s homes, and services that disrupt all shopping categories.
Much like technology and convenience apps, the younger generation will quickly embrace changes such as ordering groceries online, Jackson says.
Jackson adds, Whole Foods may try to give the Amazon grocer a more hands on feel for the next few years to not lose the client base they have.
“Younger individuals under 40 will embrace how convenient it is to open Amazon Prime and order everything you want, that is the direction they’re trying to push because nobody has truly been successful up until this point with any online food services. It will be Amazon or Walmart,” Jackson says.
Amazon has been dabbling with food services for some time now, before its purchase of Whole Foods. The e-commerce giant has been experimenting with cashier-less grocery stores across the country, and plans to continue to do so in the wake of its Whole Foods purchase. Amazon also launched a meal kit delivery service, which caused Blue Apron’s stocks to take a nose-dive.
Amazon’s Whole Foods purchase could also impact consumer packaged goods pricing in a big way, Gabor believes.
“If Amazon/Whole Foods Market are successful in driving mass purchase of their private label brands at lower prices, that could put the (consumer packaged goods) manufacturers under price pressure or even cut into their market share, changing pricing across the board,” Gabor says.
In regard to the pricing strategy for Amazon and Whole Foods, Gabor says a lot still has to play out.
“It’s like the wild west right now for food/food tech/grocery and e-commerce in general,” she says.