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How Amazon Plans To Use Whole Foods to Dominate the Retail Industry

106 points by juokaz 8y ago

alistproducer2 8y ago
They should've bought Kroger if that was their intent. WF is too expensive for like 80% of the U.S population.
- hn_throwaway_99 8y ago
  I disagree. The nice thing about WF is they have relatively fat margins, so that "margin space" gives Amazon a lot of room to operate. For example, they could provide cheaper delivery while still being profitable, just less profitable. Margins on traditional grocers like Kroger are so thin there is very little room to operate. With WF, Amazon could get a model that works and then work on making it more broadly applicable (like WF has already started doing with their cheaper WF 360 stores).
  - zitterbewegung 8y ago
    Yea but Amazon usually operates at lower and lower margins . Also, if you give the other retailers in the space they can adapt .
  - alistproducer2 8y ago
    I see what you're saying but I still think a more accessible store with more economically diverse location (most WF were built where could afford to shop there) would've been a better move. It would've put Amazon in the heart of more communities. Remember Walmart started by catering to poor people and it turned out to be the right decision. I'm not so sure starting out catering to rich people is going to be the right decision in the long run.
    - bredren 8y ago
      It worked for iPhone.
      - alistproducer2 8y ago
        you mean, carrier subsidization worked for the iphone.
        bredren 8y ago
        No, I don’t. The iphone was $600 with subsidy. Other phones were free or less than $100 w subsidy.
    - fma 8y ago
      IMHO it's easier to bring a high end retail down to the common folks than to take a low end retail to the rich folks. That's how luxury goods..Couch, Michael Kors work...become a luxury good, then reduce price/quality for common folks. Common folks get luxury name and feel good. You'll abandon the rich people but you'll make more money.
  - jbob2000 8y ago
    I poked my head in to see what the fuss was about when Amazon purchased them. $8 for a dozen eggs when other stores charge $3. Pure insanity. I laughed myself out of the store.
    - quadrangle 8y ago
      Make it a real argument, not a straw-man. WF has their most expensive pasture-raised eggs at under $8/dozen while also selling cheaper varieties at closer to $3/dozen or $4/dozen, and even their cheaper varieties are not from the truly grotesque worst-case factory farms that the cheapest eggs elsewhere come from. There might be something to debate here, but it's definitely not insane. There do exist upscale over-priced places way more expensive than WF which are closer to your straw-man.
    - fma 8y ago
      I can only speak to items I'm familiar with. Cafe Du monde for example sells for $9.99 at Whole Foods. It's $4.99 at your local Asian grocery store, $3.99 on sale. $7.44 at Walmart Pics for proof: http://www.imgur.com/gallery/BrHhzVx http://www.imgur.com/gallery/BrHhzVx I guess the high price is the Whole Foods tax. That being said, I do eat at their deli...
  - bluGill 8y ago
    The problem is Amazon bought whole foods at the peak. The other retailers were already catching on that people will pay higher margins for some things and developing to serve that market. This brings out price competition, eroding margins...
    - artursapek 8y ago
      Hard to call a peak while it's happening, don't you think? I think one thing WF has that is not as obvious is a nice atmosphere and interior design. It's just relaxing to walk through it compared to a Safeway or Fred Meyer or whatever. I don't see WF falling behind any time soon.
      - bluGill 8y ago
        I will fully agree with your points. To me it looks like the peak, but we will only know in 20 years. Note that business is complex and a good business pivots often, it may be that whole foods was bought at the peak of one, but they pivots to something else and remain successful. If Whole foods pivots to something else and remains successful that would prove nothing either way.
- rhacker 8y ago
  Fred Meyer, Smiths, King Soopers, City Market -- all great stores. The other neat thing about them is that even backwoods towns now have self checkout (not every single location yet but close). I would have to say they are just about the best grocery store conglomerate out there.
yodon 8y ago
I’m amazed at how little discussion there is of Amazon using WF as a beachhead to go after the grocery warehousing and distribution industry. Retail is just one touchpoint for administering a tax on the industry. Warehousing and distribution is a far more centralized and efficient infrastructure play for a company like Amazon than trying to go after all the individually managed and differentiated retail stores. Does Amazon understand how to do cold warehouse storage and shipping of perishable goods? Not yet. Can they? Certainly.
- brudgers 8y ago
  In 1992, I worked in a precast/prestressed concrete plant. One of the projects was a 500' fire wall for a Walmart distribution center near Brooksville, Florida. One side was dry goods, the other side was cold goods. There was 1000 linear feat of wall because it was double panel (as fire walls often are). That cold/perishable side was up and running 25 years ago. Before Walmart was even "in the grocery business". Of course before Amazon...Bezos hadn't even left Wall Street. The hype about Amazon and Whole Foods ignores the real logistical challenge of the grocery business at scale. Catching up with Walmart means delivering fresh food everywhere 24 hours a day, not just "in select markets during business hours." I'd put it this way, Walmart's infrastructure can move upscale in the grocery market more easily than Amazon/WF's infrastructure can scale up for grocery sales. A significant amount of Amazon's existing inventory sits as stock in a warehouse. Amazon is not nearly as driven by just in time contracts with suppliers as Walmart.
  - deleted 8y ago
    [deleted]
  - irq-1 8y ago
    Amazon could combine efficiencies in distribution scale with a marketplace for producers. Wallmart beats the suppliers down on price and quality, and only supplies their own stores. Amazon could supply many chain stores, profiting on the distribution/supply management, and also create a marketplace where suppliers sell to the chain stores, and profiting again on organizing the market.
jpao79 8y ago
I'm curious if Amazon will ever attempt something equivalent to a weekly neighborhood-wide prime grocery shipment receiving time. Basically, every Tuesday at 10am-11am, my neighborhood will receive its weekly grocery shipments. If my other non-perishable prime packages happen to be in their holding warehouse by that time, I will get my non-perishable packages delivered to me at that time as well. It would seem by bunching up the shipments it would save gas costs and last mile delivery costs.
- dsfyu404ed 8y ago
  Along those same lines, I'd totally stick a crappy IoT digital scale in my kitchen so that Walmart, Amazon, the NSA. etc can track my $regularly_purchased_item consumption habits so long as said crappy little digital scale orders me more of whatever that item is before I run out.
  - jpao79 8y ago
    Yeah - I'm envisioning a refillable Amazon box for sugar, salts, cereal etc. that re-ordered themselves when low. Maybe using that Dash button technology. Also a nice, paintable residential Amazon locker for home delivery to the front porch would be ideal. I hear Amazon is working with Lennar these days but it seems to be all about Alexa.
- mistermann 8y ago
  If you put your feet up and brainstorm various possibilities like this, it's pretty exciting imagining what could be possible once certain technologies hit "good enough" levels, and(!) Amazon is granted permissions to really innovate in the infrastructure space in major population centers (say, leasing building rooftops for mini-warehouses, very light rail (<= 1m x 1m packages up to say 10 kg or whatever) connecting buildings to each other and to the ground to facilitate rapid delivery without being constrained by streets and carrying capacity of drones). I hope I live long enough to see some of this happen.
- ethiclub 8y ago
  >every Tuesday at 10am-11am, my neighborhood will receive its weekly grocery shipments I view this as a constraint of the technology / infra and a temporary workaround. In the same way that scheduled tv programming (structuring your day around prerecorded media) seems absurd, surely so will this ("back in my day, we had to wait until the groceries were ready for us!") I feel Amazon would work around this constraint asks aim directly for on demand, regardless of increased difficulty. They aren't in the business of making the customer work for them. It would be a step bbw ok compared to car boot/trunk initiatives etc.
petra 8y ago
Why is this implied assumption that Amazon will win, where Walmart seems much better positioned to win groceries ? One possible scenario, for example: convenience is key. So people shift from cooking at home(only ~10% love to cook ) to buying fresh, restaurant quality, heat-and-eat meals. Key parameters to compete here are quality, selection and price. Walmart could offer good quality via help of external chefs, if they get critical mass they could offer enough selection, and since they buy much more food than Amazon ingredients will come cheaper for them, supply chain will be cheaper for them, and and the only place Amazon may have an advantage is more efficient food making process, so there some chance Amazon could win where(altougj most like the innovation will come from a startup, which also Walmart can acquire) , but even so ,will it negate all of Walmart's advantages, and won't be copyable in some form ? And remember, even for wealthy people that care less about price, better cost efficiencies could mean better food, better reviews or better paid marketing. So What about other Amazon differentiators: Amazon Ecbo ? Google will offer that. Instead of just delivering stuff, putting them is people's fridges. Is that something that people do? Is that something so hard to copy ? And is that really a meaningful differentiation ?
- runwerks 8y ago
  i think one of the things you're missing is that whole foods locations tend to be in more upscale, urban locations. and people that live in upscale, urban locations can't stand walmart.
  - petra 8y ago
    That's a good point. But Walmart build pickup points at upscale neighbourhoods. They even built an automated store to do so, and it'd 20x80 foot, pretty small: https://newsok.com/article/5551667/walmart-introduces-automated-grocery-pickup-kiosk-at-oklahoma-city-store https://newsok.com/article/5551667/walmart-introduces-automa...
- mbesto 8y ago
  > positioned to win groceries Retail grocery sales != meal kits. In one instance, you simply procure the product and sell it on, and the other you procure, kit and sell via online. Huge difference. > Key parameters to compete here are quality, selection and price. Walmart could offer good quality via help of external chefs, if they get critical mass they could offer enough selection, Have you ever actually stepped into a Walmart? Walmart does not compete on any of those parameters, except for price. > to buying fresh, restaurant quality, heat-and-eat meals. Except this is not what is happening. Those companies have ridiculously high churn rates, which means the trend is fairly benign to certain sectors of the market (mainly large cities).
C_System 8y ago
Where does Instacart fit into this equation?
- deleted 8y ago
  [deleted]
chuckgreenman 8y ago
They really choose to start somewhat from the bottom then, doesn't Whole Foods have something like ~3%-5% of the grocery market? Compare that to companies with comparatively massive market shares like Kroger and Walmart. I can see an argument being made that groceries is a good way to go because people have to eat, but the topology of the industry doesn't really have a medium sized company that you could pour gasoline onto to gain a lot of market share. Something in a different industry might have been a better play to pilot before moving into other retail spaces.
- niftich 8y ago
  As of 2017, Whole Foods' marketshare in grocery and retail was 1.2%. Walmart 14.5%, Kroger 7.2%. Data from GlobalData Retail, via CNBC [1][2]. [1] https://www.cnbc.com/2017/06/16/amazon-whole-foods-control-only-sliver-of-the-grocery-market-for-now.html https://www.cnbc.com/2017/06/16/amazon-whole-foods-control-o... [2] https://www.cnbc.com/2017/06/21/dont-worry-wal-mart-amazon-buying-whole-foods-is-just-a-drop-in-the-bucket.html https://www.cnbc.com/2017/06/21/dont-worry-wal-mart-amazon-b...
- nostrademons 8y ago
  They're at the top in brand reputation and at the bottom in market share. People who care a lot about food and are willing to spend on it accordingly shop at Whole Foods. There are relatively few of these people, hence their small market share. (A similar dynamic happens in most consumer industries: Apple famously has only 18% of the smartphone market but makes 87% of the profits, because they market to people who are willing to spend a lot on a cell phone.) This is a pretty rational choice for Amazon, because Amazon's core competency is making things cheaper and more widely available but they have little experience in making things better - and indeed, their whole value proposition is largely in making things commoditized, helping you buy a "good enough" product more conveniently for less money. With Whole Foods, they're buying the brand and the expertise in quality, and then they can apply their existing strengths in logistics and supplier management to wrangle down the price and expand market share.
  - megaman22 8y ago
fiveFeet 8y ago
A bit off topic but I wish the Costco membership had something like "Amazon Prime Video" for watching movies.
deleted 8y ago
[deleted]
AdmiralAsshat 8y ago
>The Seattle giant believes selling you groceries is the key to selling you everything else. I mean...they're not wrong here. The grocery store is primarily for selling you groceries, but it's also the first place most people stop for cookware, trashbags, deodorant, etc because it's right there. I am a guy who tries to buy "quality" equipment for anything and everything, and usually I do meticulous research before buying anything online (read the Amazon reviews, cross reference with America's Test Kitchen and Serious Eats guides, etc). Nonetheless, I've bought my fair share of food containers or occasional kitchen tool from my grocery store because I had some cookie dough in my basket and I needed a cookie sheet right now or those cookies weren't going to happen.
jedberg 8y ago
My wife is literally at Whole Foods right now, picking up an item she bought from their Treasure Box today. She will most likely walk inside since she's "already there" and pick up some stuff at Whole Foods.

106 points by juokaz 8y ago

alistproducer2 8y ago

They should've bought Kroger if that was their intent. WF is too expensive for like 80% of the U.S population.

hn_throwaway_99 8y ago
I disagree. The nice thing about WF is they have relatively fat margins, so that "margin space" gives Amazon a lot of room to operate. For example, they could provide cheaper delivery while still being profitable, just less profitable. Margins on traditional grocers like Kroger are so thin there is very little room to operate. With WF, Amazon could get a model that works and then work on making it more broadly applicable (like WF has already started doing with their cheaper WF 360 stores).
- zitterbewegung 8y ago
  Yea but Amazon usually operates at lower and lower margins . Also, if you give the other retailers in the space they can adapt .
- alistproducer2 8y ago
  I see what you're saying but I still think a more accessible store with more economically diverse location (most WF were built where could afford to shop there) would've been a better move. It would've put Amazon in the heart of more communities. Remember Walmart started by catering to poor people and it turned out to be the right decision. I'm not so sure starting out catering to rich people is going to be the right decision in the long run.
  - bredren 8y ago
    It worked for iPhone.
    - alistproducer2 8y ago
      you mean, carrier subsidization worked for the iphone.
      - bredren 8y ago
        No, I don’t. The iphone was $600 with subsidy. Other phones were free or less than $100 w subsidy.
  - fma 8y ago
    IMHO it's easier to bring a high end retail down to the common folks than to take a low end retail to the rich folks. That's how luxury goods..Couch, Michael Kors work...become a luxury good, then reduce price/quality for common folks. Common folks get luxury name and feel good. You'll abandon the rich people but you'll make more money.
- jbob2000 8y ago
  I poked my head in to see what the fuss was about when Amazon purchased them. $8 for a dozen eggs when other stores charge $3. Pure insanity. I laughed myself out of the store.
  - quadrangle 8y ago
    Make it a real argument, not a straw-man. WF has their most expensive pasture-raised eggs at under $8/dozen while also selling cheaper varieties at closer to $3/dozen or $4/dozen, and even their cheaper varieties are not from the truly grotesque worst-case factory farms that the cheapest eggs elsewhere come from. There might be something to debate here, but it's definitely not insane. There do exist upscale over-priced places way more expensive than WF which are closer to your straw-man.
  - fma 8y ago
    I can only speak to items I'm familiar with. Cafe Du monde for example sells for $9.99 at Whole Foods. It's $4.99 at your local Asian grocery store, $3.99 on sale. $7.44 at Walmart Pics for proof: http://www.imgur.com/gallery/BrHhzVx http://www.imgur.com/gallery/BrHhzVx I guess the high price is the Whole Foods tax. That being said, I do eat at their deli...
- bluGill 8y ago
  The problem is Amazon bought whole foods at the peak. The other retailers were already catching on that people will pay higher margins for some things and developing to serve that market. This brings out price competition, eroding margins...
  - artursapek 8y ago
    Hard to call a peak while it's happening, don't you think? I think one thing WF has that is not as obvious is a nice atmosphere and interior design. It's just relaxing to walk through it compared to a Safeway or Fred Meyer or whatever. I don't see WF falling behind any time soon.
    - bluGill 8y ago
      I will fully agree with your points. To me it looks like the peak, but we will only know in 20 years. Note that business is complex and a good business pivots often, it may be that whole foods was bought at the peak of one, but they pivots to something else and remain successful. If Whole foods pivots to something else and remains successful that would prove nothing either way.
rhacker 8y ago
Fred Meyer, Smiths, King Soopers, City Market -- all great stores. The other neat thing about them is that even backwoods towns now have self checkout (not every single location yet but close). I would have to say they are just about the best grocery store conglomerate out there.

yodon 8y ago

I’m amazed at how little discussion there is of Amazon using WF as a beachhead to go after the grocery warehousing and distribution industry. Retail is just one touchpoint for administering a tax on the industry. Warehousing and distribution is a far more centralized and efficient infrastructure play for a company like Amazon than trying to go after all the individually managed and differentiated retail stores. Does Amazon understand how to do cold warehouse storage and shipping of perishable goods? Not yet. Can they? Certainly.

brudgers 8y ago
In 1992, I worked in a precast/prestressed concrete plant. One of the projects was a 500' fire wall for a Walmart distribution center near Brooksville, Florida. One side was dry goods, the other side was cold goods. There was 1000 linear feat of wall because it was double panel (as fire walls often are). That cold/perishable side was up and running 25 years ago. Before Walmart was even "in the grocery business". Of course before Amazon...Bezos hadn't even left Wall Street. The hype about Amazon and Whole Foods ignores the real logistical challenge of the grocery business at scale. Catching up with Walmart means delivering fresh food everywhere 24 hours a day, not just "in select markets during business hours." I'd put it this way, Walmart's infrastructure can move upscale in the grocery market more easily than Amazon/WF's infrastructure can scale up for grocery sales. A significant amount of Amazon's existing inventory sits as stock in a warehouse. Amazon is not nearly as driven by just in time contracts with suppliers as Walmart.
- deleted 8y ago
  [deleted]
- irq-1 8y ago
  Amazon could combine efficiencies in distribution scale with a marketplace for producers. Wallmart beats the suppliers down on price and quality, and only supplies their own stores. Amazon could supply many chain stores, profiting on the distribution/supply management, and also create a marketplace where suppliers sell to the chain stores, and profiting again on organizing the market.

jpao79 8y ago

I'm curious if Amazon will ever attempt something equivalent to a weekly neighborhood-wide prime grocery shipment receiving time. Basically, every Tuesday at 10am-11am, my neighborhood will receive its weekly grocery shipments. If my other non-perishable prime packages happen to be in their holding warehouse by that time, I will get my non-perishable packages delivered to me at that time as well. It would seem by bunching up the shipments it would save gas costs and last mile delivery costs.

dsfyu404ed 8y ago
Along those same lines, I'd totally stick a crappy IoT digital scale in my kitchen so that Walmart, Amazon, the NSA. etc can track my $regularly_purchased_item consumption habits so long as said crappy little digital scale orders me more of whatever that item is before I run out.
- jpao79 8y ago
  Yeah - I'm envisioning a refillable Amazon box for sugar, salts, cereal etc. that re-ordered themselves when low. Maybe using that Dash button technology. Also a nice, paintable residential Amazon locker for home delivery to the front porch would be ideal. I hear Amazon is working with Lennar these days but it seems to be all about Alexa.
mistermann 8y ago
If you put your feet up and brainstorm various possibilities like this, it's pretty exciting imagining what could be possible once certain technologies hit "good enough" levels, and(!) Amazon is granted permissions to really innovate in the infrastructure space in major population centers (say, leasing building rooftops for mini-warehouses, very light rail (<= 1m x 1m packages up to say 10 kg or whatever) connecting buildings to each other and to the ground to facilitate rapid delivery without being constrained by streets and carrying capacity of drones). I hope I live long enough to see some of this happen.
ethiclub 8y ago
>every Tuesday at 10am-11am, my neighborhood will receive its weekly grocery shipments I view this as a constraint of the technology / infra and a temporary workaround. In the same way that scheduled tv programming (structuring your day around prerecorded media) seems absurd, surely so will this ("back in my day, we had to wait until the groceries were ready for us!") I feel Amazon would work around this constraint asks aim directly for on demand, regardless of increased difficulty. They aren't in the business of making the customer work for them. It would be a step bbw ok compared to car boot/trunk initiatives etc.

petra 8y ago

Why is this implied assumption that Amazon will win, where Walmart seems much better positioned to win groceries ? One possible scenario, for example: convenience is key. So people shift from cooking at home(only ~10% love to cook ) to buying fresh, restaurant quality, heat-and-eat meals. Key parameters to compete here are quality, selection and price. Walmart could offer good quality via help of external chefs, if they get critical mass they could offer enough selection, and since they buy much more food than Amazon ingredients will come cheaper for them, supply chain will be cheaper for them, and and the only place Amazon may have an advantage is more efficient food making process, so there some chance Amazon could win where(altougj most like the innovation will come from a startup, which also Walmart can acquire) , but even so ,will it negate all of Walmart's advantages, and won't be copyable in some form ? And remember, even for wealthy people that care less about price, better cost efficiencies could mean better food, better reviews or better paid marketing. So What about other Amazon differentiators: Amazon Ecbo ? Google will offer that. Instead of just delivering stuff, putting them is people's fridges. Is that something that people do? Is that something so hard to copy ? And is that really a meaningful differentiation ?

runwerks 8y ago
i think one of the things you're missing is that whole foods locations tend to be in more upscale, urban locations. and people that live in upscale, urban locations can't stand walmart.
- petra 8y ago
  That's a good point. But Walmart build pickup points at upscale neighbourhoods. They even built an automated store to do so, and it'd 20x80 foot, pretty small: https://newsok.com/article/5551667/walmart-introduces-automated-grocery-pickup-kiosk-at-oklahoma-city-store https://newsok.com/article/5551667/walmart-introduces-automa...
mbesto 8y ago
> positioned to win groceries Retail grocery sales != meal kits. In one instance, you simply procure the product and sell it on, and the other you procure, kit and sell via online. Huge difference. > Key parameters to compete here are quality, selection and price. Walmart could offer good quality via help of external chefs, if they get critical mass they could offer enough selection, Have you ever actually stepped into a Walmart? Walmart does not compete on any of those parameters, except for price. > to buying fresh, restaurant quality, heat-and-eat meals. Except this is not what is happening. Those companies have ridiculously high churn rates, which means the trend is fairly benign to certain sectors of the market (mainly large cities).

C_System 8y ago

Where does Instacart fit into this equation?

deleted 8y ago
[deleted]

chuckgreenman 8y ago

They really choose to start somewhat from the bottom then, doesn't Whole Foods have something like ~3%-5% of the grocery market? Compare that to companies with comparatively massive market shares like Kroger and Walmart. I can see an argument being made that groceries is a good way to go because people have to eat, but the topology of the industry doesn't really have a medium sized company that you could pour gasoline onto to gain a lot of market share. Something in a different industry might have been a better play to pilot before moving into other retail spaces.

niftich 8y ago
As of 2017, Whole Foods' marketshare in grocery and retail was 1.2%. Walmart 14.5%, Kroger 7.2%. Data from GlobalData Retail, via CNBC [1][2]. [1] https://www.cnbc.com/2017/06/16/amazon-whole-foods-control-only-sliver-of-the-grocery-market-for-now.html https://www.cnbc.com/2017/06/16/amazon-whole-foods-control-o... [2] https://www.cnbc.com/2017/06/21/dont-worry-wal-mart-amazon-buying-whole-foods-is-just-a-drop-in-the-bucket.html https://www.cnbc.com/2017/06/21/dont-worry-wal-mart-amazon-b...
nostrademons 8y ago
They're at the top in brand reputation and at the bottom in market share. People who care a lot about food and are willing to spend on it accordingly shop at Whole Foods. There are relatively few of these people, hence their small market share. (A similar dynamic happens in most consumer industries: Apple famously has only 18% of the smartphone market but makes 87% of the profits, because they market to people who are willing to spend a lot on a cell phone.) This is a pretty rational choice for Amazon, because Amazon's core competency is making things cheaper and more widely available but they have little experience in making things better - and indeed, their whole value proposition is largely in making things commoditized, helping you buy a "good enough" product more conveniently for less money. With Whole Foods, they're buying the brand and the expertise in quality, and then they can apply their existing strengths in logistics and supplier management to wrangle down the price and expand market share.
- megaman22 8y ago

fiveFeet 8y ago

A bit off topic but I wish the Costco membership had something like "Amazon Prime Video" for watching movies.

deleted 8y ago

[deleted]

AdmiralAsshat 8y ago

>The Seattle giant believes selling you groceries is the key to selling you everything else. I mean...they're not wrong here. The grocery store is primarily for selling you groceries, but it's also the first place most people stop for cookware, trashbags, deodorant, etc because it's right there. I am a guy who tries to buy "quality" equipment for anything and everything, and usually I do meticulous research before buying anything online (read the Amazon reviews, cross reference with America's Test Kitchen and Serious Eats guides, etc). Nonetheless, I've bought my fair share of food containers or occasional kitchen tool from my grocery store because I had some cookie dough in my basket and I needed a cookie sheet right now or those cookies weren't going to happen.

jedberg 8y ago

My wife is literally at Whole Foods right now, picking up an item she bought from their Treasure Box today. She will most likely walk inside since she's "already there" and pick up some stuff at Whole Foods.