How Amazon Plans To Use Whole Foods to Dominate the Retail Industry
fortune.com
fortune.com
Retail is just one touchpoint for administering a tax on the industry. Warehousing and distribution is a far more centralized and efficient infrastructure play for a company like Amazon than trying to go after all the individually managed and differentiated retail stores.
Does Amazon understand how to do cold warehouse storage and shipping of perishable goods? Not yet. Can they? Certainly.
The hype about Amazon and Whole Foods ignores the real logistical challenge of the grocery business at scale. Catching up with Walmart means delivering fresh food everywhere 24 hours a day, not just "in select markets during business hours." I'd put it this way, Walmart's infrastructure can move upscale in the grocery market more easily than Amazon/WF's infrastructure can scale up for grocery sales. A significant amount of Amazon's existing inventory sits as stock in a warehouse. Amazon is not nearly as driven by just in time contracts with suppliers as Walmart.
Wallmart beats the suppliers down on price and quality, and only supplies their own stores. Amazon could supply many chain stores, profiting on the distribution/supply management, and also create a marketplace where suppliers sell to the chain stores, and profiting again on organizing the market.
McDonald's, frequently considered to run one of the best supply chains in the world, outsources nearly all of their logistics to "white label" food distributors like those owned by Reyes Holdings [1][2], who then dispatch food in McDonalds's-branded trailers, but handle every aspect of distribution.
[1] https://en.wikipedia.org/wiki/Reyes_Holdings [2] http://martinbrower.com/our-story.html
Can Walmart move their brand upscale? That may be more of a challenge than infrastructure.
As purchase trends continue to shift, Walmart needs to effectively service low-income customers in-store and middle- and high-income customers online (and perhaps occasionally in-store for pickups). Their core brand needs to represent different things to different customer segments. Not easy to do, but I'm glad they are trying.
Whether it is hard or not, have you seen instances of it being done? On Amazon or elsewhere?
Walmart's business wasn't built on selling to low income people. It is built on selling to everyone in places like Fort Stockton, Texas. The person renting a dilapidated trailer and the rancher with 150,000 acres of cattle and oil leases both shop there because there aren't a lot of other practical options short of driving to El Paso. Not saying that there's not a significant difference in branding, but a lot of that difference is that Whole Foods brand images for people who are offended by Pop Tarts and HFCS on "their" store's shelves. On the other hand, Walmart's potential customer base is anyone who is not offended by shopping at Walmart for the vastest majority of grocery purchases.
But the mid to higher end doesn't give away their money without judgment; that's the problem.
My platinum Amex works at Walmart just like everyone else's credit card, and with curbside pickup, I don't even have to go in. I can pull up, check in with the kids still in the car, and have the car loaded and be on my way in 5 minutes.
I don't shop Whole Foods because a) the value isn't there ("Whole Paycheck", and I don't have nor want Prime to get a discount) and b) Walmart is a slightly less evil sweatshop than Amazon (IMHO).
Sidenote: If anyone from Walmart Labs is reading this, you've really up'd your mobile (iOS) game. Kudos.
As far as Whole Foods goes, it has some specialty stuff you can't get elsewhere easily, but as a main grocery store the selection is small and the prices are high.
On the subject of the acceptance of Walmart as the county store for all income and wealth levels, I agree it’ll take more time for normalization.
And, although he is long gone, Sam Walton was notorious for opposing the minimum wage. It's unclear to what extent that attitude persists.
[0] Walmart Workers Cost Taxpayers $6.2 Billion In Public Assistance https://www.forbes.com/sites/clareoconnor/2014/04/15/report-...
[1] Sam Walton and Minimum Wage https://www.snopes.com/fact-check/wage-and-means/
Not sure WF/Amazon has that skill, especially since Whole Food's margins have allowed for them to have a greater spoilage rate, while still having attractive displays of produce/meat.
Amazon prime now has been going on for years. I've had them deliver refrigerated eggs to me before. It worked great. But to your point they don't yet offer fresh produce. Hopefully soon.
>You're subscribed to a heat-sensitive product that we're unable to ship during the summer. Your subscription for the following item has been placed on hold and will automatically resume shipping in October:
It's just so far the only tangible difference we see is Amazon products for sale in WF, some prices are a little cheaper, and WF's bakery/prepared foods are a little worse. The grocery industry is definitely freaked out.
One possible scenario, for example: convenience is key. So people shift from cooking at home(only ~10% love to cook ) to buying fresh, restaurant quality, heat-and-eat meals.
Key parameters to compete here are quality, selection and price. Walmart could offer good quality via help of external chefs, if they get critical mass they could offer enough selection, and since they buy much more food than Amazon ingredients will come cheaper for them, supply chain will be cheaper for them, and and the only place Amazon may have an advantage is more efficient food making process, so there some chance Amazon could win where(altougj most like the innovation will come from a startup, which also Walmart can acquire) , but even so ,will it negate all of Walmart's advantages, and won't be copyable in some form ?
And remember, even for wealthy people that care less about price, better cost efficiencies could mean better food, better reviews or better paid marketing.
So What about other Amazon differentiators: Amazon Ecbo ? Google will offer that. Instead of just delivering stuff, putting them is people's fridges. Is that something that people do? Is that something so hard to copy ? And is that really a meaningful differentiation ?
But Walmart build pickup points at upscale neighbourhoods. They even built an automated store to do so, and it'd 20x80 foot, pretty small:
https://newsok.com/article/5551667/walmart-introduces-automa...
Retail grocery sales != meal kits. In one instance, you simply procure the product and sell it on, and the other you procure, kit and sell via online. Huge difference.
> Key parameters to compete here are quality, selection and price. Walmart could offer good quality via help of external chefs, if they get critical mass they could offer enough selection,
Have you ever actually stepped into a Walmart? Walmart does not compete on any of those parameters, except for price.
> to buying fresh, restaurant quality, heat-and-eat meals.
Except this is not what is happening. Those companies have ridiculously high churn rates, which means the trend is fairly benign to certain sectors of the market (mainly large cities).
Most meal kits companies will die because they are inconvenient. Too expensive, too much messing around in the kitchen.
But heat-and-eat is easy(just putting something in the oven), somewhat close to takeout easy, and Walmart may take it to really interesting price points.
// Quality, selection at Walmart
Online ordering greatly increased selection. Will do for Walmart.
Walmart order food at the quality and price point fitting customers. Assuming grocery pickup/delivery will attract wealthy urbanists(see my other comment), Walmart will offer also higher quality products
> Walmart does not compete on any of those parameters, except for price.
This comment seems to disagree:
In US rural areas, they're often the only supermarket around, as "dollar"-style general stores don't sell fresh food, and local grocers have slightly higher prices, smaller stores, less product variety, and don't sell apparel and electronics. Walmart forms a single destination that draws customers from miles away, around which other services can coalesce.
Meanwhile, in urban and suburban areas, Walmart draws on demographics who are interested in low prices, while managing to avoid the quality and selection issues afflicting some low-end grocers. Shoppers with more disposable income usually opt for midrange or high-end grocers instead, to avoid some aspects of Walmart (e.g. large average basket sizes resulting in long waits for checkout, crowded parking lots, lack of focus on mood and presentation) because they can afford nicer stores.
Rural delivery is harder to execute, because population densities are lower. Therefore it's unlikely that rural America will be where Amazon's grocery ambitions make the most headway. But in urban areas, where Walmart's customer base is largely captive by income, Amazon stands to make more money by competing against mid-to-high-end chains first.
Within Amazon's ecosystem, you can get a discount by using their credit card, a discount on shipping, a discount on pre-ordering items on a subscription, and all the personally-targeted aspects of a typical loyalty card. This is their moat vs. Walmart, and consequently, Walmart would have to offer a significantly cheaper (or "better") service to entice switchers -- a high bar for luring discretionary customers.
Until WM can fix their terrible produce, I don't see how they can win groceries.
I mean...they're not wrong here. The grocery store is primarily for selling you groceries, but it's also the first place most people stop for cookware, trashbags, deodorant, etc because it's right there. I am a guy who tries to buy "quality" equipment for anything and everything, and usually I do meticulous research before buying anything online (read the Amazon reviews, cross reference with America's Test Kitchen and Serious Eats guides, etc). Nonetheless, I've bought my fair share of food containers or occasional kitchen tool from my grocery store because I had some cookie dough in my basket and I needed a cookie sheet right now or those cookies weren't going to happen.
Compare that to companies with comparatively massive market shares like Kroger and Walmart. I can see an argument being made that groceries is a good way to go because people have to eat, but the topology of the industry doesn't really have a medium sized company that you could pour gasoline onto to gain a lot of market share. Something in a different industry might have been a better play to pilot before moving into other retail spaces.
Walmart 14.5%, Kroger 7.2%. Data from GlobalData Retail, via CNBC [1][2].
[1] https://www.cnbc.com/2017/06/16/amazon-whole-foods-control-o... [2] https://www.cnbc.com/2017/06/21/dont-worry-wal-mart-amazon-b...
This is a pretty rational choice for Amazon, because Amazon's core competency is making things cheaper and more widely available but they have little experience in making things better - and indeed, their whole value proposition is largely in making things commoditized, helping you buy a "good enough" product more conveniently for less money. With Whole Foods, they're buying the brand and the expertise in quality, and then they can apply their existing strengths in logistics and supplier management to wrangle down the price and expand market share.
Walmart does have typically inferior grocery items, still; it's been 15 or so years since the super centers were built in this area with groceries, but the meat and produce is still well below par.
If the article is right, all Amazon may need to kick things into profitability is enough economies of sale (built in customers) that their perishables can be fresh.
From there they can sustain a viable business, and they can increase its size as needed.
In other words, one theory is it's not so much about buying market share, it's about buying a roughly viable business they can piggyback on while they build market share of something new.
Basically, every Tuesday at 10am-11am, my neighborhood will receive its weekly grocery shipments. If my other non-perishable prime packages happen to be in their holding warehouse by that time, I will get my non-perishable packages delivered to me at that time as well.
It would seem by bunching up the shipments it would save gas costs and last mile delivery costs.
Also a nice, paintable residential Amazon locker for home delivery to the front porch would be ideal.
I hear Amazon is working with Lennar these days but it seems to be all about Alexa.
I hope I live long enough to see some of this happen.
I view this as a constraint of the technology / infra and a temporary workaround.
In the same way that scheduled tv programming (structuring your day around prerecorded media) seems absurd, surely so will this ("back in my day, we had to wait until the groceries were ready for us!")
I feel Amazon would work around this constraint asks aim directly for on demand, regardless of increased difficulty. They aren't in the business of making the customer work for them. It would be a step bbw ok compared to car boot/trunk initiatives etc.
That's how luxury goods..Couch, Michael Kors work...become a luxury good, then reduce price/quality for common folks. Common folks get luxury name and feel good.
You'll abandon the rich people but you'll make more money.
There do exist upscale over-priced places way more expensive than WF which are closer to your straw-man.
$7.44 at Walmart
Pics for proof: http://www.imgur.com/gallery/BrHhzVx
I guess the high price is the Whole Foods tax. That being said, I do eat at their deli...
Note that business is complex and a good business pivots often, it may be that whole foods was bought at the peak of one, but they pivots to something else and remain successful. If Whole foods pivots to something else and remains successful that would prove nothing either way.