Amazon is acquiring the organic grocery enterprise Whole Foods in a 13.7 billion dollar cash deal. Pending approval from shareholders and board members, this “powerful combination of online e-commerce expertise that Amazon possesses and the organic grocery brick and mortar of Whole Foods” has already shaken up the already struggling grocery industry. As of last Thursday, Walmart, Kroger, Costco, and other grocery powerhouses’ stocks have dropped.
This purchase is a strategic move for both companies. Amazon has been trying to crack the code on groceries for a while now. Amazon learned quickly from the failure of their experimental grocery delivery program AmazonFresh that the grocery market may be more challenging than they anticipated.
But Whole Foods has it down. Praised for their high wages and responsible sourcing of products, Whole Foods has already established a good reputation for itself. According to NPD Group, 24% of millennials have bought something from Whole Foods in the last year. Whole Foods’ prepared meals and in-house dining have captured the essence of convenience many modern shoppers are looking for.
But Whole Foods’ Achilles heel is their prices. The grocery chain is notorious for being spendy, which alienates a significant portion of consumers. And with competitors like Walmart ramping up their organic and local options, it’s likely that Whole Foods will start losing business if they can’t get their costs under control.
Fortunately for Whole Foods, offering the lowest price possible is Amazon’s specialty. But there are other factors that make this a great deal for Amazon.
For one, Whole Foods has already successfully blended the grocery and restaurant experience with their prepared foods and dine-in options. In the restaurant sector, digital orders have seen a 45% increase over the last two years. Strategically, digital retail is where Amazon excels. Last year, 1/3 of all U.S. online retail was conducted through Amazon. Amazon could steer Whole Foods in an online retail direction with greater success for both of their bottom lines.
In the next ten years, we could see Whole Foods brick and mortar stores becoming distribution centers for Amazon.com sales, and we could see an increase in experiential grocery shopping at every Whole Foods. The sky is the limit with these two companies combining forces.