Amazon Acquisition of Whole Foods Market

Amazon
acquisition of
Whole Foods
Market
A watershed moment?
Amazon acquisition of Whole Foods Market:
A watershed moment?
The surprise announcement on Friday

that Amazon is to acquire the leading
US food retailer Whole Foods Market
could have significant implications
for food retailing, food suppliers and
the supply chain. Leatherhead Food
Research assesses five areas that
may have significance to Leatherhead
members.
1. Disruption is real 2. Clicks to bricks – the dotcom bubble reverses?
“A transformative transaction, not just for food retail, It seems an irony that the mother of all online retailers,
but for retail in general,” is how Moody’s ratings’ Amazon, should have acquired a traditional bricks and
agency has described the deal. News of the mortar brand. Whole Foods Market has about 460
transaction sent share prices in traditional stores – 9 in the UK.
supermarkets into a tailspin: Walmart, the worlds’
largest retailer, fell by 5.4 per cent, with similar falls Food has been on Amazon’s agenda for a long time as
experienced by both the UK’s biggest chain Tesco and demonstrated by the launch of Amazon Fresh a
Germany’s Metro. decade ago. Food is a really attractive sector for an

organisation such as Amazon because it is a high
Amazon, of course, is famous for completely frequency purchase which drives efficiency in logistics
disrupting markets, from initially book retailing and thus reduces cost – a key strength of Amazon in
through online channels to much of non-grocery the past. But food has been a tough nut to crack with
retailing and then onto cloud computing services. The market commentators noting that customers have
launch of Amazon Echo following on from the Kindle complained about Amazon’s poor range of offerings
has taken it into consumer electronics positioning and lack of availability. Fresh produce has been an
itself for the “smart” home. This concept of a non- especially big challenge, with its limited shelf life,
traditional company walking into a market space with putting unique pressure on the logistics of any
incumbents is of course part of a wider trend – Uber organisation.
upsetting the taxi and minicab market, Netflix
disrupting broadcasting and Airbnb disrupting the Though all the sexy talk recently has been about drone
hotel industry. delivery, distributing a relatively low value item to the

customer’s home is a unique economic challenge. In
contrast distributing to nodal points such as those
provided by the 460 retail outlets is a whole different
ball game. People already have and like “pick up and
go” retail models, and perhaps food in general and
fresh produce in particular may evolve this way in
preference to direct-to-the-customer-home. While you
are picking up your food you can also pick up the
books/clothes/gifts/etc. you ordered!
3. Premiumisation
It is interesting that Amazon has chosen to buy a

Leatherhead’s proprietary 2017 consumer research1,
premium food & beverage retailer. Whole Foods
where we interviewed thousands of consumers
Market is nicknamed “whole pay check” in the US
around the world, identified that consumers are very
because of its high prices. On the one hand, the fact
much focussed on the nutritional quality of what they
that the products command higher prices and
eat. 40% of those surveyed said they wanted “healthy
therefore have greater margins, means that if you are
products which make me feel full for longer” more
going to play in food & beverage this might be the
readily available. This was followed up by “products
space. On the other hand, Amazon is about value
matching my personal dietary and nutritional needs”
(historically, focussing on low prices), speed and
at 32% and “products containing key vitamins and
convenience, without the compromise on quality of
minerals” at 29%. These were the top three answers
the product delivered.
suggesting that the drive for health is a trend not a
fad.
This could, however, be more of a stepping stone
acquisition. Whole Foods Market customers spend
5. Technology, innovation and power to the
money and will pay a premium, allowing Amazon to
customer
build equity and trust. Amazon’s Prime customers
tend to be its more affluent customers and it may be The importance of the customer has been key to
that there is good overlap between these customer Amazon’s growth. They have focused relentlessly on
bases. But it seems likely that Amazon will look to play the consumer experience in the buying process, the
in the mass market – perhaps enabled by acquisitions products themselves and the delivery models. This
of trusted regional players with bricks. move into physical retailing reflects the fact that
different people want to buy in different ways at
4. The health trend different times.
The health trend in food and beverage continues to

grow. This is no great surprise but perhaps its
recognition by mainstream retailer Amazon is
definitive in its move from niche to mainstream. Whole
Foods Market has been instrumental in bringing
organic and health foods into consumer
consciousness and making them fun and relevant not
dull and “worthy”. With its educated customer base,
Amazon could potentially democratise/commoditise
organic, wholesome nutrition to the mass market
where other food & beverage retailers have struggled.
In 2016, Leatherhead undertook research in our consumers select food and this could be a benefit to
member base about attitudes to innovation. One head them in the next generation of automated food
of innovation at a food manufacturer noted: “... selection and delivery. Understanding why and how
everything is so instantaneous and consequently we consumers make food purchases; connecting in-store
have more freedom of choice than we’ve ever had. The and online purchasing; and innovating the in-store
days of doing a weekly shop for the whole family are experience are all places we may expect change.
long gone – people switch around different retailers,
they buy online or off their phone, everything is there Summary
at the consumer’s fingertips.”2 The Amazon announcement took the food retailing
market by surprise and had an immediate impact on
Amazon has already started to play with novel retail
shares in many traditional organisations as investors
models – not least their yet-to-launch pick-up-and-go
worried about the impact on existing players in the
store in Seattle. Amazon Echo allows verbal orders
market. At present, Amazon’s plans are unclear and
and commands allowing people to purchase as and
food retailing has repeatedly demonstrated its high
when they want. They also have the ‘dash’ button for
barriers to entry and even higher challenges to be
right-now ordering.
successful. But Amazon has very deep pockets and a
The Whole Foods Market retail space could provide a determination to succeed. If Amazon history repeats
physical “laboratory” to deploy new technology for itself, the food retailing market may never be the same
new customer experiences. High-tech, artificial again and innovation will be the key to future success
intelligence in store could help Amazon learn how for food retailers and suppliers.
About Leatherhead Food Research

Leatherhead Food Research provides expertise and support to the global food and drinks sector with practical
solutions that cover all stages of a product’s life cycle from consumer insight, ingredient innovation and sensory
testing to food safety consultancy and global regulatory advice. Leatherhead operates a membership
programme which represents a who’s who of the global food and drinks industry. Supporting all members and
clients, large or small, Leatherhead provides consultancy and advice, as well as training, market news,
published reports and bespoke projects. Alongside member support and project work, our world-renowned
experts deliver cutting-edge research in areas that drive long-term commercial benefit for the food and drinks
industry.
Leatherhead Food Research is a trading name of Leatherhead Research Ltd, a Science Group (AIM:SAG)
company. Science Group provides independent advisory and leading-edge product development services
focused on the Group’s in-depth science and technology capability. It has seven offices globally, two dedicated
UK-based R&D innovation centres and more than 350 employees. Other Science Group companies include
Oakland Innovation, OTM Consulting and Sagentia.
1
Serving up solutions for a changing consumer (2017) Leatherhead Food Research. Leatherhead surveyed 1,000 consumers in each of
China, Brazil, US and France and 2,000 in the UK.
2
Poised for an age of innovation (2016) Leatherhead Food Research. Leatherhead interviewed 28 representatives in the food & beverage
industry about their attitudes to innovation. Research is free to all Leatherhead members. https://www.leatherheadfood.com/
publication/poised-for-an-age-of-innovation/
T: +44 1372 376761 E: help@leatherheadfood.com

www.leatherheadfood.com

Amazon Acquisition of Whole Foods Market

Uploaded by

Copyright:

Available Formats

Amazon Acquisition of Whole Foods Market

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Amazon Acquisition of Whole Foods Market

Uploaded by

Copyright:

Available Formats

Amazon

The surprise announcement on Friday

1. Disruption is real 2. Clicks to bricks – the dotcom bubble reverses?

Germany’s Metro. decade ago. Food is a really attractive sector for an

hotel industry. delivery, distributing a relatively low value item to the

It is interesting that Amazon has chosen to buy a

The health trend in food and beverage continues to

About Leatherhead Food Research

T: +44 1372 376761 E: help@leatherheadfood.com

You might also like