Prepare for your pockets to get a whole lot deeper– Last week Amazon cut the “whole paycheck” prices of Whole Foods 43 percent, and this is just the beginning of countless more changes to come. Following Amazon’s $13.4 billion dollar acquisition last June, plenty of talk has circulated about what lies ahead for the future of Whole Foods. From speculations of drone-delivered groceries to a clerk-less checkout system, no one is entirely certain what will amount from this deal. Regardless of what happens, it is safe to say that the marriage between Amazon and Whole Foods will have a lasting impact on the food system.
Amazon has already had a huge effect on the way that we shop: think Amazon Prime. The level of convenience offered through this platform allows customers to buy everything from the comfort of their own home, and have it delivered to their doorstep within the timespan of two days. With the help of Whole Foods, Amazon is hoping to provide that same level of convenience, but with high-end groceries. The company has tried to incorporate food into their repertoire before, but it has been a tough and slow-moving process. The main hurdle is that produce bruises easily and meat spoils, meaning that the time-margin for delivering groceries is not only tight but also expensive. That is where Whole Foods comes in.
While Amazon has built an empire in the ecommerce world, their physical presence is rather small in comparison. With their current grocery programs, AmazonFresh and Prime Pantry, there’s just a little over 3 million square feet of dedicated warehouse space. By merging with Whole Foods, that number will increase to 4 million. While this addition isn’t huge, it’s not just about the total amount of space, but the frequency of locations. In order to distribute perishable groceries, it’s important to have many sites to source food from before it goes bad. Whole Foods has over 450 locations throughout the country, and they happen to be in high income zip codes. This means that by merging with Whole Foods, Amazon is acquiring not only an established grocery franchise, but also a guaranteed customer base and a vast distribution network.
Whole Foods also benefits from this deal. Their stock has been falling for several years now, with their “whole paycheck” prices making it difficult to compete with other supermarket chains. With Amazon’s price-reduction prowess, certain grocery items will be made more affordable. They will be able to provide a way for the middle customer to buy Whole Foods quality produce at a Safeway price, and competitors are already positioning their reactions. Amazon is raising the standards of grocery shopping, and forcing other supermarket chains to follow suit. In order to compete with Amazon’s advanced technology and Whole Food’s standards of food, rival grocery stores need to rethink their traditional business model and join the future of ecommerce.
Now that Amazon has acquired Whole Foods, grocery shopping as we know it will likely be a thing of the past. What does this mean for smaller retailers and food producers? There is the possibility that artisan suppliers could be thrown at the wayside if they don’t comply with Amazon’s expectations and pricing model. The incredibly competitive and complicated process of securing placement on Whole Foods shelves could also get a whole lot more difficult. On the opposite end, shoppers with a concern for local businesses could turn up the volume on their dedication to small, neighborhood grocers. It could also be an opportunity to raise the standards of food, making healthy and organic produce more of a norm across America.
With two influential companies joining forces, it’s hard to tell exactly how this deal will influence the food system. It is clear, however, that Amazon and Whole Foods have a huge competitive advantage over other grocery stores. With sweeping changes in store and new technological advancements to come, this union is impactful not only for what it represents now, but for how it will change the entire system of food in the future. Who knows– years from now we could all be talking about the time when we actually shopped at grocery stores.