Amazon & Whole Foods – One Year On

Amazon & Whole Foods – One Year On

We are approaching the one year anniversary of Amazon’s acquisition of Whole Foods and we wanted to review some of the ramifications on Amazon, Whole Foods, and online grocery.  Before diving in, a quick reminder on the details – Amazon closed the deal on August 28, 2017 with a purchase price of $13.7B.

When the deal was announced, there was speculation abound for what this would mean for Whole Foods and online grocery as a whole.  Forbes speculated the purchase was about data + private label.  Morgan Stanley predicted an increase in Prime memberships due to the estimated 40% of Whole Foods shoppers that weren’t already Prime members along with cheaper prices.  The Wall Street Journal focused on Whole Foods stores as urban pickup and delivery hubs.  The overall sentiment from analysts and the media alike was that this move would transform the US grocery market.  Many, like Forbes, picked Amazon as the easy winner.  We opined that Amazon was not the easy winner in the US grocery fight. Lets look at the major changes driven by the acquisition and see where we stand a year in.

  1. Prices and Amazon Prime – Early on post close, there was a lot of hype around lower prices.  Deeper analysis performed last spring revealed prices were down only 1.2%.  Starting in May, however, Whole Foods began to roll out a 10% Prime discount across 13 states, expanding the program nationwide in JuneVerdict: Amazon leveraged Whole Foods to increase Prime memberships and drive increased loyalty from existing members, without substantially changes base prices.  This move makes sense, as it drives more Prime Memberships and increases the annual spend across all Amazon properties, while recognizing that most Whole Foods shoppers are less price sensitive.
  2. Whole Foods as Delivery Hubs – At the time of the announcement, a lot of analysts speculated that Amazon would leverage the bricks and mortar presence of Whole Foods to do online grocery delivery.  Amazon launched a Prime Now delivery offering of Whole Foods items (replacing a previous offering via Instacart) and has been expanding it into more markets.  Additionally, Amazon just announced the launch of Prime Now pickup at select Whole Foods locations.  Verdict:  Amazon has certainly leveraged Whole Foods locations for online grocery, but not like the analysts had predicted.  Why? Because Whole Foods has very different product distribution from what’s available on Amazon Fresh and Whole Foods locations simply don’t have the space to store and fulfil Amazon Fresh orders.
  3. Product Selection – One change that wasn’t predicted was the centralization of distribution decisions, taking some of the power from regional buyers and moving it to national buyers.  A lot of reporting following this announcement focused on the blow to small brands, the brands that made Whole Foods what it is.  However, this appears to be an over reaction, as regional buyers will still have authority to bring in new products as long as the the new products is sold in three regions or less.  Verdict: Too early to tell

All in, these changes have stabilized Whole Foods decline with a 3% increase in foot traffic, but trips, basket size, and overall sales remain flat.

The biggest outcome from the acquisition has been the awakening of the competition for the full assortment online grocery consumer, with sales up 100% in the 12 months ending march 2018.  While many of the competitive moves were in the plans before the acquisition, they have been greatly accelerated.  Walmart is set to have 2000 grocery pickup locations and delivery to 100 markets – 40% of US households by the end of the year.  Walmart’s moves are already having an impact – a 40% increase in online sales in its second quarter.  Meanwhile, Kroger has 1200 ClickList pickup locations and is partnering with Instacart to provide delivery.  Kroger’s online sales surged 65% in its first quarter.  Instacart and Shipt (now owned by Target) have also continued to grow.

So who are the early winners in the battle for the full assortment consumer? According to a Rakuten Intelligence report from March of 2018, Instacart, Walmart, Kroger, Shipt, Peapod, and yes – Amazon Fresh.


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