In the beginning, Jeff Bezos started Amazon with the intention of taking advantage of the Internet Boom and starting an online retail site. His first target was the book industry. His biggest move to take over the book industry happened on November 19, 2007. On that day, the 1st generation Amazon Kindle was available for sale and "[sold] out in 5.5 hours". With that device, you could buy and download books straight to your Kindle all while sitting in the comfort of your house. Thanks to the Kindle, Books-a-Million and Barnes and Nobles slowly but surely started to see their sales decline to the point where my younger sister has no idea what any of those two stores are.
Next was the improvement their data collecting and analytic skills to capitalize to on their online selling skills.
In that screen shot above, Amazon's data collecting and analyzing skills keeps customers buying more than Jim Cramer's Get Rich Carefully. It's similar to brick-and-mortar stores putting the commonly bought items like milk, eggs, and bread way in the back of the store and have items like cookies, donuts, and jelly strategically placed throughout your journey to find the items that you truly come to store to purchase. (And, you better believe companies like Walmart track and study the trekking and searching patterns of every customer that walks through their store.)
But, this move to buy Whole Foods has to the Bezos' biggest move for Amazon. To be honest, I guess we all should have seen this coming. Firstly, Amazon has been testing its Amazon Fresh grocery delivery service since August 2007 in Seattle, Amazon's hometown, and moved the service to its first market outside of Seattle in June 2013. Then, Amazon opened its first physical bookstore in Seattle in November 2015. Amazon kept teasing the idea of opening a grocery store with no checkout lines and smart sensors to know what items a customer grabbed and charge him/her for it as they walk out of the store. So, Amazon purchasing Whole Foods may provide Bezos with the necessary retail space to quickly roll his Amazon Go idea out nationwide, or at least he can use his data collecting and analyzing skills to revive Whole Food's once amazing sales.
So, Why is Amazon so interested in a grocery store?
According to Ripen Ecommerce, "the vast majority of US retail sales, 92%, still happen offline". Even though this article was written in August 2014, I still hear experts on CNBC and finance media outlets say that percentage is roughly 90%. But, "8% of a $3.2 trillion industry" comes out to $256 Billion being done online in the United States. That explains why Amazon invest a boatload of resources to stay ahead of all the growing trends and marketing methods to remain a dominant force in online retail space. Looking at the Amazon's yearly sales on Amazon's Investor Relations Page, Amazon's total US retail sales at the end of 2016 totaled to $79.785 Billion, which equates to 31% of online US market. Amazon still has a long way to go before they break the 50% majority to declare themselves the kings of online retail.
Now, why would Amazon go after Whole Foods and not Target or the big behemoth Walmart? Well, accorcding to CNN Money, "groceries accounted for 55%" of the Walmart's total sales in 2012. Again, I know this number is 5 years old, but a friend of mine who heavily invests in retailers like Walmart and Costco told me that number is still around 50%. The reason Walmart made the shift to make grocery sales to comprise of 20% to 55% of their total sales was to cater to consumers' needs rather than their wants. Everyone needs to eat, but not everyone wants a new televison or laptop. Also, looking deeper into the Ripen Ecommerce article, 30.8% of the people surveyed said "they want to see or feel products in person". People like me want to feel their fruits and vegetables and examine their meat before they send their hard earned dollars on their future meal. Additionally, 29.9% of the people surveyed said they wanted their items right away. Items like fruits, vegetables, and toilet paper are items I need right away. Amazon has gotten better with having products like toilet paper and bath soap placed on a scheduled purchase so you can have it when you need it. But, if something unexpected happens like your shampoo spills out in your suitcase or TSA takes your Listerine away, Amazon Prime won't be able to help me out in bind. Also, Whole Foods has a section where they sell freshly prepared meals that I will enjoy right away, not 2 to 3 days from the time of purchase.
What will Amazon do with Whole Foods once the sale is complete?
I know the transition will be slow to convert point-of-sales software and data collecting and analyzing tool to help Amazon, or it will help push the Amazon Fresh idea further especially if they can recreate what Blue Apron has done with meal delivery service industry, but maybe we will see a Whole Foods store like this sometime in 2020.
Image Sources
- https://www.pinterest.com/pin/313211349061151961
- http://avengersalliance.wikia.com/wiki/Professor_X
Sources
- https://www.engadget.com/2007/11/21/kindle-sells-out-in-two-days/
- https://www.usatoday.com/story/tech/news/2017/01/18/amazon-bookstores-brick-and-mortar/96667506/#
- https://en.wikipedia.org/wiki/AmazonFresh
- http://www.ripenecommerce.com/blog/ecommerce_survey
- Amazon's Investor Relations Page
- http://money.cnn.com/2013/01/31/news/companies/walmart-grocery/index.html