Amazon purchases whole foods and the distribution channel comes to you

The purchase of Whole Foods by Amazon has sent grocery store stocks into tailspin. Could Amazon do to Safeway and Korger what it did to Borders and Barnes & Noble?

Some people have observed that the purchase impacts the nascent grocery delivery sector more than the established supermarkets. That was my first thought. For me Saturday used to involve a trip to Whole Foods. But not anymore. Basically I use Instacart. (I can’t use Amazon Fresh because it doesn’t delivery to where I live. For now….)

Because¬†Amazon is such a monster of a company people are talking about grocery stores as the underdog in this new war. But the reality is that what we think of “grocery store” is something far different from what someone in 1900 would have imagined. Americans today assume that the supermarket is synonymous with groceries. But supermarkets as institutions are economic innovations which date to the 20th century. The rise of the sector by showcasing its pioneering firm is detailed in The Great A&P and the Struggle for Small Business in America. As the title makes clear the rise of supermarkets resulted in a massive creative destruction in the American economy and culture.

Before A&P reimagined the profession being a grocer was a way for working class men to have a job that could support a family and give them some independence. But as the supermarkets cannibalized small grocers, men who had run their own businesses became employees in large corporations. Entrepreneurs became clerks. Creative destruction also worked so that eventually A&P was marginalized by new-model supermarkets that catered to suburban families. Today Walmart and Whole Foods have been attacking the low and top ends of the market and squeezing out smaller players.

Walmart’s battle from the bottom-up seems to have beaten Whole Foods’ premium strategy.¬†Amazon’s purchase makes sense since Whole Foods has some assets major it can bring to the battle, but Walmart scale just too much for them to tackle.

As we all know the retail sector is changing. Half of millennials now buy groceries online at least some of the time. Malls are closing as their anchor department stores struggle. Where would a modern day Tiffany do her tour? Obviously it’s YouTube.

But that doesn’t mean that people won’t venture out. Upscale retail plazas are replacing the role of malls. Independent bookstores are still around, while Borders is gone and Barnes & Noble is a shadow of what it was. The positive aspect of the death of bricks and mortar retail is that we spend less time out and about on errands. Rather, we go out to eat at a restaurant, or meet friends in the park or at a bar. The downside is a smaller and smaller set of firms are dominating the supply chains between producers and consumers. I think Amazon will be targeted by antitrust considerations in the 2020s.

3 thoughts on “Amazon purchases whole foods and the distribution channel comes to you

  1. I am less than impressed by this move. Whole Foods is a business for the top part of the wealth spectrum. Everybody else calls it whole paycheck and never shops there. They are Wal-Mart’s customers and Kroger’s customers.

    How Whole Foods fits with Amazon is a complete mystery to me. I doubt that Amazon’s model is to go up-scale. There are not enough customers in that space. And, I don’t see how Amazon + Whole Foods can be > than Wal-Mart. Again, not enough customers.

  2. Wait and see, Walter. I have seen enough of Amazon not to try to second guess what they are doing.

    Amazon is in the process of moving into Australia, and has Australian retailers, including the big supermarket chains, really worried; a lot of them were already under the pump, with a lot of well established retailers permanently closing their doors recently. This will accelerate the process – share prices of major retail chains are dropping like rocks in anticipation of Amazon taking market share away from them.

    Not in Hong Kong, where online shopping has been a notable total failure. Infamously picky HK shoppers want to see and feel what they buy before they pay for it. For fresh food, a lot of HK people don’t even go to supermarkets; they go to open air so-called ‘wet markets’ to get the freshest produce, including live fish and other seafood, and poultry.

    I can buy a live Australian lobster in HK; in Australia, I can’t – it’s already dead and sitting on a bed of ice, and still costs me more than it does in HK (try figuring out how that works – I can’t). The HK trade in live poultry goes through big ructions and becomes a political issue whenever a concern about a bird ‘flu epidemic raises its head. H5N1 bird ‘flu first came to world attention when it killed 6 children in HK in 1996 – little kids who came into direct contact with chicken shit while their mothers were shopping in wet markets. Common sense dictates that market selling of live poultry should just be shut down forever on community health grounds, but the groundswell of opposition to that from the general community is very strong, typically from the lower SES and less educated sector of the population, who want their chickens and ducks to be still alive when they buy them.

    I have bought some stuff online through Amazon (typically from third party suppliers) – a new seat for my bicycle and some other bits and pieces. But I don’t ever foresee a time when my Chinese wife will buy fresh food online – she just won’t. She wants to squeeze and smell the fruit and veg before she buys it. She has a super-sensitive sense of smell, and often chooses stuff to buy by smelling it. Before she will let me eat seafood in a restaurant, she smells it to make sure it’s fresh enough.

    I have learned from experience to acquiesce and be ruled by the tyranny of my wife’s nose.

  3. “How Whole Foods fits with Amazon is a complete mystery to me.”

    As our esteemed host noted, Whole Foods has major assets: a chain of retail stores. I suspect that’s what interested Amazon. Now that they’re bringing up their enter-pick-leave-no-bother automated store system, they need a larger number of stores for deployment.

    It takes an enormous amount of time to find a good retail location opportunity (aphorism: “all the good ones are already taken”), and set it up. If you already own the store, converting it to an Amazon Go store is far faster.

    So I expect Whole Foods to last a year at most as a specific offering. Next year, every Whole Foods is going to be converted into an amazon store.

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