Amazon shocked the Internet this past summer when they purchased Whole Foods for $13.7 billion. Not many saw this coming, but it makes perfect sense. It could revolutionize the grocery sector. Whole Foods could be the pivotal chess piece in the war between the two superpower corporations, Amazon and Walmart.
How Whole Foods Wins
In the world of grocery, Whole Foods was a boutique operation. With big time players Kroger, Albertsons and Walmart dominating the grocery sector, the clock was ticking. Each one of those competitors is at least 5x the size of Whole Foods. They can dominate supply, and easily undercut Whole Foods on price.
Now, Whole Foods has the backing of one of the most successful companies of the last 25 years. They can now compete with these big time players.
How Amazon Wins
This is pretty easy. They won in two key ways. They acquired a highly valuable demographic, and they instantly setup shop in over 400 physical locations.
Targeted Demographic
Whole Foods customers are one of the most valuable demographics in the world. They are higher income individuals, they value quality products, and they are not price sensitive.
This might sound similar to Amazon Prime customers. Amazon Prime is addictive, and many prices are much higher than competitor physical and electronic stores. Customers love to click the button and receive their goods within a two day window.
It’s the perfect marriage of customer bases, and it should blend well.
Instant Expansion
Amazon has not been shy about its ambition to sell products in physical locations. This past winter they announced their AmazonGo concept as the future of physical retail. This year they opened their first physical book stores. It is clear; they want to expand their empire into the physical world.
With the acquisition of Whole Foods, they now have over 400 stores instantly in their arsenal. Whole Foods locations tend to be in higher income areas and already have a built-in customer base (as described above). Just like Amazon Prime customers paying higher prices for instant gratification, Amazon saves an immense amount of stress and time by acquiring the grocer.
They don’t have to acquire land for 400 locations. They don’t have to wait for stores to be built. They don’t need to go through the lengthy permitting process.
Simply, they bought time with this turnkey purchase.
Battle Plan
In the next decade, two superpowers will battle it out for commercial superiority. Like the Cold War, you will see a stockpiling of weapons and allies. Amazon sits in one corner. In the other corner is Walmart.
The physical retail market has been dominated by Walmart for a long time, and in recent years, they have been acquiring e-commerce properties. Last year they acquired Jet.com for $3.3 billion, and the same day the Amazon-Whole Foods deal broke, Walmart purchased the online clothing retailer Bonobos for over $300 million.
Walmart is moving towards e-commerce while Amazon continues to move towards physical retail. We don’t know where they will meet, but it is certain that these two commercial superpowers will dominate all commerce for the next 10–20 years.
Get your wallets ready because this competition is going to be great for consumers.
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