https://twitter.com/dkberman/status/875701677504024576
"Amazon did not just buy Whole Foods grocery stores. It bought 431 upper-income, prime-location distribution nodes for everything it does."
"Amazon did not just buy Whole Foods grocery stores. It bought 431 upper-income, prime-location distribution nodes for everything it does."
This deal is about expansion, not about tapping into 431 measly location. Amazon knows they can set up satellite warehouses a lot faster and cheaper than they can create a store.
Let's be clear. Whole Foods is not a commodity food supplier. They enjoy high margins because they have cultivated quality and consciousness into their products. They did to food what Apple did to computers. They added the right mix of intangibles with a sense of mission and purpose that people can many buy into. Add on top of that, and Whole Foods adds an expertise procuring a catalog of high-end suppliers for both packages and fresh foods and the safe handling of those foods.
This deal should significantly improve Amazon's food delivery offerings. As a food snob and target demographic, I can say this will significantly improve my chances of using Amazon's food delivery service. I've used it in the past, but wasn't satisfied because I was disappointed with the quality and selection. It wasn't bad, it just wasn't great.
I suspect most people will not be willing to buy the high-end products, but that's not the point. The point is the high-end/high-margin products will be available so shoppers won't have to go out and do supplementary shopping to get the "good stuff". If online grocery shopping is going to become viable, they need to make sure they reduce the need for supplementary shopping as much as possible. Having a leg and data from a real grocery store will help them figure out what they need to do to improve.
So why did it fail with food ?
Our bodies, like most other animals, dedicate so many resources and features to the quality detection and digestion of food and our second largest concentration of nerve cells exists in our gut. Eons before we could comparison shop, we and our evolutionary ancestors were foraging, testing and evaluating what we can eat. How we evaluate this product is based on an innate system that been shaped over countless years.
When you eat something bad, that nervous system goes out of its way to tell your brain not to eat that thing again. You may try to ignore it, but the brain has some pretty coercive methods to make sure you never forget what made you sick. For me, it turned me off goat cheese for about 5 years, even though I knew I had come down with a stomach bug. It didn't matter. My brain didn't give a shit. All it knows is I felt like shit after I ate goat cheese, so it's going to tell me to stay away from fucking goat cheese. (Fortunately, I can now enjoy it again.)
Needless to say, food borne illness is a huge concern with the industry because a handful of incidents (Think Chipotle) can have a devastating effect. Want to prevent it? You have two options:
The first option, you can go the preservation route with additives and refrigeration. This is what we did in the 20th century. We basically created conditions to make it hard for bacteria and pathogens to eat our food before we ate it. Either this meant you kept it cold, or you made it inedible. For example, one reason bleached white bread lasts longer than old fashioned sour dough recipes is because you've effectively stripped all the nutrients out of it. Old fashioned bread is nutrient rich. You can live off it. The bleached bread was so nutrient poor that people started suffering from malnutrition diseases like rickets until some clever person realized you can fortify bread with flower.
Needless to say, most preservation systems take away something. It could be nutrients, texture, flavor, or a host of other things.
The second option is to source fresh ingredients, handle it well, and eat it as soon as you can. This is what Chipotle tried to do and what virtually no other fast food joint tries to do because it requires organizational and operational disciple. The stakes are high and people have long memories when it comes to making people sick. Even as adults, once you've associated doody with someone or something, that stuff sticks in your head. I'm pretty sure when people started inventing verbal language, one of the first words that was uttered was something equivalent to the word "yucky".
Now that we've got that illness and yuckiness are a huge part of this industry, you have to remember that food is also an artistic expression and part of people's sense of identity, way more than most things you might buy on Amazon. We have holidays that celebrate food bounties. We use it to commune with friends and family. Explorers set out expeditions and discovered entire fucking continents because they wanted better access to spices to make their food taste better.
Food is trendy, the customers are fickle and easy to scare and they have long memories. As a company, you can't just stumble into that industry and make it work robots and good operations procedures. It takes inside knowledge and expertise that is cultivated by an organization. This is why it was important for Amazon to buy a company that worked hard to try to figure out how to procure and provide fresh, health conscious, and sustainable foods. They're buying Whole Food's reputation and expertise because they know reputation and expertise is everything in the food business.
Granted, building a global scale infrastructure was an amazing accomplishment, but you have to concede it's easier when you're starting with a team who already knows something about the business.
But you can have so much more than lockers when you own the place.
This. I've worked for Whole Foods and my wife currently does. They find small, local companies that make natural products. They work with them to market their products and test them in their stores. They collect a lot of data on how customers respond to the products, improve them, and then distribute them nationally.
The reason Whole Foods has been suffering is because they're not big enough. Once these companies have a valuable product, they want to sell them at Walmart, Kroger, HEB, etc.
But Amazon is big enough that they could make deals with these companies. I believe Amazon wants Whole Foods so that it can generate new, popular, high-margin food products that can only be bought in a Whole Foods store or on Amazon.
You get free same day delivery. Amazon just greatly saved on last mile delivery costs.
That's the value of those nodes without having to store all the inventory.
Not for me either, but not everyone wants or can have groceries and/or packages sitting on their porch all day.
I haven't used it yet, but I just went to their website. I picked the store that I pass on my way home from work. Next available pickup is tomorrow at noon. They gotta go same day if they want people to use it. That or it's popular at this particular store, who knows.
We got a Market Basket in Maine I think 2 years ago - in Biddeford. No joke, you'd think it were Six Flags with the traffic it gets on the weekends.
- Local supermarket (pickup and delivery)
- Amazon Fresh
- Services like BlueApron
BlueApron is a WAY better value, IMO. This is where I see the future being. It's fun, healthy (very), promotes sustainability, is fairly cost-effective (once you consider they deliver it as part of the cost) and is worry-free.
Shopping on Amazon still means I have to shop. Might as well take 5-10 minutes and go to the store :)
If this works out for Amazon, I wouldn't be surprised to see Walmart try and buy Trader Joe's. They own Aldi, which has made a big push to compete with Walmart's reach outside cities. The nearest Aldi is closer than Walmart, and that's already not far away.
The line dividing Germany into Aldi Nord and Aldi Süd territory — https://upload.wikimedia.org/wikipedia/commons/f/fc/Aldi_equ... — is called the "Aldi equator". We sometimes jokingly call it Germany's most important dividing line post-reunification :)
tl;dr Aldi and Trader Joe's are (theoretically) in competition, and neither owns the other. The other Aldi owns Trader Joe's.
The two Aldi locations I drive past are both located less than a mile from the nearest Walmart locations (I expect they do a fair amount of piggybacking).
The purchase doesn't make a huge amount of sense to me. I guess the most sensible thing is that they see the stores being located by the best populations to start out doing food deliveries for (affluent, so they can charge higher prices while they figure out how to do it).
Walmart has a pickup service. They keep experimenting with rapid delivery but people don't really want to pay much for it.
1. http://www.chainstoreage.com/article/different-kind-drone-ro...
This deal was more about corporate politics and shareholder drama than anything else.
I'm under the impression this is something they're really trying to optimize right now. Not sure if it's everywhere but where I live in Cincinnati, Amazon is now operating their own courier service for normal Prime deliveries piggybacking on top of Prime Now drivers.
When you place an order (on regular Amazon.com) you don't necessarily know whether it will come from UPS, FedEx, an Amazon courier, etc. The Amazon couriers don't seem to know that it's not a Prime Now order and that the delivery time isn't known in advance to the customer like it is with Prime Now, as they show up midday and call you (from an unknown number) anticipating you'd be at home and asking you to let them in the gate.
One unexpected problem that emerges here is that the standard delivery service courier for a route is regular and that one person can be given a gate key; much harder to solve that with dozens or hundreds of couriers.
I personally also strongly dislike going to the Whole Foods stores in my area.
[1] Plausible scenario based on dozens of comments on HN
I never used it, but I'm not really in Tesco's target market for non-food stuff.
Although it's a strange thing to measure, approximately 7.5 million people (~2.3% of the US) live in a state without a Whole Foods.
The acquisition makes WF an instant partner of Prime Now (unintended pun). The demographic that uses the app and wants groceries now has a reliable and recognized source for said needs. This will only increase the use of Prime Now, thereby making Prime a more entrenched and indispensable service for a certain demographic. Better yet, the benefits will be symbiotic: WF can benefit from Amazon's advanced logistics capabilities. These efficiencies might help the brand shake off its reputation for super high prices.
Strategically, this is a slam dunk for Amazon and certain segments of its customers.
They just bought a higher income grocery business, which they were aggressively seeking to dive deeper into. They'll use the locations for pick-up & delivery points plausibly and they'll bind it to Prime in various ways. They'll probably also leverage Whole Foods into smaller, smart / automated stores, micro whole foods stores in the image they've been experimenting with for self-shopping.
It would have cost them billions to build out the grocery distribution points they were planning to do anyway. They'll save a lot on that cost, and meanwhile the Whole Foods business is generating $500m per year in net income consistently, over ten years it'll plausibly nicely chop into that purchase price and or fund Amazon's experiments.
this is they type of acquisition that seems a little puzzling at first, but makes sense in the context of their overall strategy (unlike most acquisitions, which just remain puzzling since they're usually ego/prestige plays).
* distribution network
* store stock
* employees
* high end real estate
* High-end food brand to sell from * Customer goodwill
* Company brand