(Prototype source: coin.cnn.com)
Practice yous call up the furor that exploded when nosotros all began to realize the serious impact that Amazon was going to take on the future of book retailing? It seems similar a long time ago at present. And also, disrupting the paperback market may have been where it all started for Amazon, but it certainly wasn’t where the story ended.
And now we are faced with the opening of a new affiliate. On June xvithursday, Amazon announced that it would be buying organic grocer Whole Foods Market place in a bargain valued at about $13.7 billion. The move catapults the ecommerce behemothic straight into over 450 physical locations, and immediately fulfils its long-held want to sell more groceries.
“Millions of people dear Whole Foods Market considering they offer the best natural and organic foods, and they arrive fun to eat healthy,” Amazon Founder and CEO Jeff Bezos said in a statement.
“Whole Foods Market has been satisfying, delighting, and nourishing customers for almost iv decades – they’re doing an astonishing task and we desire that to continue.”
That’southward all well and skillful, but the immediate implications for the grocery manufacture are huge – and in that location’s more a whiff of fear coming from retailers of all stripes as the potential ramifications begin to sink in.
Competing Stocks Plummet
Amazon’southward takeover of Whole Foods sent the stocks of competing grocery chains plummeting. Walmart sank $3.67 (iv.7%), Target savage $2.85 (5.ane%), Costco dropped $12.95 (seven.ii%). The list goes on and on.
Because competing with Amazon is a terrifying prospect for any incumbent business. This is primarily due to the fact that Amazon operates on a radical model whereby it doesn’t make whatever money – and that’southward a big problem for every other grocery chain, which has to argue with razor-sparse margins already.
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The fright is that Whole Foods will nearly certainly accept lower profit margins nether Amazon – and that spells all sorts of trouble for competitors.
Today, Whole Foods is considered to be a slightly upmarket store – which is another mode of maxim that it’south a nice identify to shop, but expensive. Just if profits of a sudden cease to be a concern, this issue is very simply addressed past making things cheaper. Then, as reduced prices will almost certainly increment demand, more than locations are sure to follow.
Whole Foods competitors could very soon be potentially forced into a toll war where they find themselves essentially unarmed – when a player who doesn’t care nearly margins enters a market, the consequences will surely be devastating to its competitors who have to.
A Sign of Things to Come?
Fifty-fifty without delivering profits, Whole Foods could nonetheless deliver additional value in other ways.
Are we to see, for example, some sort of scenario where Whole Foods customers might be required to “log in” with their Amazon Prime number accounts to access discounts in store? That would deliver megatons of new user data that Amazon could exploit in other areas of its concern – not to mention a potential surge in Amazon Prime membership signups. More simply, the stores too present useful channels through which Kindles, Fire TVs, Echoes and other Amazon hardware can be sold.
But let’s think about those stores for a moment.
Amazon has just acquired overnight a national physical presence, and a network of mini-distribution centers for fresh produce (and potentially everything else) to boot. And if Amazon decides to utilize groceries equally a ways to increase the frequency of home deliveries, information technology’due south not hard to imagine what other types of products it could pile into home commitment vehicles (non to mention the customer pickup option that merely landed on the table). The last-mile logistics obstacle for fresh nutrient deliveries may only have taken a giant leap towards being solved.
Just hither’s the real worry for the retail sector at big.
If Amazon can acquire its mode into groceries – with all the tech and budget in the earth to reinvent the sector as it sees fit – what’due south to finish it from muscling into drug stores, electronics stores, department stores, appliance stores, or anywhere else?
To take any hope of remaining competitive if an acquisition spree were to take hold in other segments of the retail industry, all players operating today demand to establish means to reinvent themselves – fast.
Amazon conspicuously doesn’t want to remain an ecommerce-only outfit forever. And indeed, every bit nosotros come across more than and more than online-only startups invest in physical spaces – coming on the heels of the past decade’s surge of traditional retailers getting to grips with digital commerce – information technology seems that retailers now know that they cannot survive through either ecommerce or bricks-and-mortar alone.
What’s needed is a combination of both.
This is an enormous task for many retailers to reach – but the stakes accept merely been raised, and, sadly, a large number will undoubtedly fail the transition.
What we must remember when nosotros look back is the fact that Amazon non but changed the way books were sold, information technology even changed how they were made.
Publishers, authors, and everyone else along the supply chain had to cut their costs to deal with the new Amazon model – and that was fifty-fifty before the Kindle came along.
The aforementioned thing could be just about to beginning happening in food, with nutrient manufacturers facing the same struggles every bit book publishers did, and competing stores squeezed out of profitability. We look to see the outcome over the coming 12-24 months.
In the meantime, we inquire – who’s next?
Summing upwards the potential disruption most succinctly, the last word goes to Michael Pachter, an analyst at Wedbush Securities Inc:
“Amazon clearly wants to be in grocery, conspicuously believes a physical presence gives them an advantage. I assume the physical presence gives them the ability to distribute other products more locally. And then theoretically you lot could get 5-infinitesimal delivery.”