Amazon just bought Whole Foods for USD13.7 billion, a big investment asserting just how serious the retailer is about driving reach into fresh food, both in the U.S. and internationally.
This move follows the ramp-up of AmazonFresh grocery in 2016, when the retailer expanded the service to six new U.S. markets and to the U.K. The service, which is positioned with a connection to farmers markets and local stores, emphasizes natural and wellness products. Whole Foods’ brand positioning gives Amazon the credibility in fresh and natural that it lacked.
With Whole Foods, Amazon gains authoritative reach and credibility in fresh, natural grocery.
For context, Whole Foods is a leading natural grocer, with USD15.5 billion in sales last year. It has 447 stores in the U.S., 9 in the U.K., and 12 in Canada. Although Whole Foods has only 9% U.S. household penetration, the two retailers’ shopper audiences closely align. According to Kantar Retail ShopperScape® data, monthly Amazon shoppers and monthly Whole Foods shoppers both tend to be younger, more affluent, and urban. Indeed, 76% of past four-week Whole Foods shoppers also shop Amazon.com (Figure 1). Amazon may open up the Whole Foods proposition to a much larger audience, since only 11% of Amazon shoppers shop Whole Foods today.
Kantar Retail Point of View
This announcement has several clear implications for Amazon’s positioning, competitors, and suppliers.
What does this mean for Amazon’s positioning?
Fresh credibility at scale will accelerate Amazon’s reach into grocery, across the U.S. and internationally. Amazon is now a USD15.5 billion food retailer. This acquisition will give it a vehicle to expand grocery into more countries and across more platforms. Given Whole Foods’ existing footprint in Canada, this market is now ripe for Fresh expansion. Markets such as France, Spain, or Japan may follow.
Broadly, Whole Foods enriches Amazon’s consumables platforms (Fresh, Now, and Pantry), and strengthens the Prime membership offer. Shopping Whole Foods through Alexa for two-hour Prime Now delivery will soon be a reality. Amazon will elevate and combine convenience, value, and natural/fresh shopping.
We also expect Amazon to install its technology at Whole Foods locations. This may include click-and-collect grocery pickup services and its Amazon Go automatic checkout technology. Both technologies, which are being tested in Seattle today, will accelerate the store’s trip flexibility and as they roll out.
Conversely, this acquisition does not mark the start of a massive cross-channel brick-and-mortar expansion. Acquiring Whole Foods fills a specific capability and credibility gap for Amazon. And expanding grocery reach is a key strategic focus for the retailer to win share of wallet. For that reason, do not expect to see Amazon acquiring a wide range of retailers across the landscape.
Which competitors will be most impacted?
Kroger, Target, and Costco will face the most pressure here. This competitive pressure is due to proposition, geography, and audience overlap with Whole Foods and Amazon. Both Target and Costco already face competition from Amazon, and the combined Whole Foods-Amazon will step up its ability to compete with Kroger. Amazon will give Whole Foods logistics capabilities it just didn’t have before, whereas Amazon gets access to fresh expertise and reach. Whole Foods also gives Amazon access to 365, a value-for-money private label with strong credibility in natural and wellness. We expect these labels to start appearing in Pantry over time, furthering Amazon’s ability to go after both weekly grocery and stock-up occasions that these three competitors represent.
The other competitor to watch is Instacart whose strategic partnership with Whole Foods is now clearly disrupted. This announcement will certainly impact its positioning. The question is how central is Whole Foods to shoppers’ preference for using Instacart? We suspect the answer is “very.”
What does this mean for suppliers?
- Stronger grocery credibility will bring stronger shopper reach and sales growth. This will accelerate not only Fresh, but also Pantry, and Now. Consider both the competitive impact of 365 and the rising reach of Amazon’s Prime platforms. Reassess your forecasts for each of these platforms, because they will now escalate faster than previously expected.
- Rising strength in trade promotion planning. Today, Amazon is still learning classic grocery marketing and promotions. As it gains expertise, watch for and anticipate greater demands in this space.
- Amazon’s consumables private label reach will escalate. Building on last year’s rollout and expansion of the Wickedly Prime and Happy Belly lines, Amazon’s consumables private labels are now significantly stronger. The retailer may use its label to set value-for-money benchmarks for shoppers. With both Amazon’s private label credibility and reach accelerated, identifying and articulating price-value positioning versus these lines will be key.
Stay tuned to KantarRetailiQ.com as we continue to assess this development.
For more information, please contact:
Robin Sherk, Vice President – North American eCommerce
Diana Sheehan, Director – Grocery channel
Malcolm Pinkerton, Vice President – European eCommerce