Forum adverts like this one are shown to any user who is not logged in. Join us by filling out a tiny 3 field form and you will get your own, free, dakka user account which gives a good range of benefits to you: No adverts like this in the forums anymore. Times and dates in your local timezone. Full tracking of what you have read so you can skip to your first unread post, easily see what has changed since you last logged in, and easily see what is new at a glance. Email notifications for threads you want to watch closely. Being a part of the oldest wargaming community on the net. If you are already a member then feel free to login now.

I admit, I do not get why they would do this at all? They have been beating the pants of regular retail and growing marketshare like crazy without the overheads of their competition. Then they do this?

This article tries to explain the logic:

http://www.slate.com/articles/business/moneybox/2017/06/amazon_s_purchase_of_whole_foods_is_about_the_last_mile_problem.html

Getting through the last mile is linear and iterative—a delivery person can literally only deliver one package or service to one customer at a time. There are other complications for companies seeking to deliver groceries and fresh food. The cost of shipping is directly related to both weight and volume, so shipping things like 50-pound bags of dog food or 12-packs of paper towels doesn’t always make sense. In addition, fruits, vegetables, and meats have to be handled with more care than electronics. You can’t just leave the groceries on people’s doorsteps, where they will be exposed to the elements or to animals. We’ve been using Peapod for more than a decade, and we have to be home in the two-hour window that the company gives us. This inconvenience is a barrier to use.

But what physical stores have always done is to make the store the last mile. With brick and mortar, it is the customer who invests the time and energy to travel the to the store—or the mall, or the strip mall, or the big-box retailer—to pick up the goods and deliver them to his or her own home. And there are a lot of efficiencies for operators of stores: You can carry a lot of inventory on hand, you save on shipping and labor, you can serve dozens of customers at the same time.

So imagine the possibilities. You, an Amazon Prime customer, can shop for groceries at Whole Foods on Amazon and then choose an option to pick up the groceries on the way home. (Maybe there’s even a discount for doing so.) And, of course, you might then be offered the option to order a bunch of other stuff on Amazon (a couple books, some socks, garden tools) and choose to pick those things up at Whole Foods at your convenience. And when you go to pick up the goods, you might also drop off a jacket you bought on Amazon that needs to be returned. Whole Foods may well be about to become Amazon’s second user interface.

As of now, Amazon absorbs all the costs for the last-mile activities described above. But if you have a bunch of well-lit, large distribution nodes in excellent locations with lots of parking, or that are bypassed by lots of foot traffic, and if you can encourage some of your customers to pick up and drop off from those places, then the customers are picking up a large share of those costs.

Amazon isn’t just buying a bourgie grocery chain, in other words. It’s also acquiring the labor of its customers to get its goods where they need to go.

I am not buying what the article is selling. I look at it as a HUGE step backwards for the company and a sign that they might not know what to do with all that share money they are getting. I mean, if you are beating compeititors like Barnes and Noble, Target, and Wal-mart why would you move closer to their model? Target does this exact thing the article talks about and they have been struggling lately. They had no answer to the Amazon question despite having a very good E-commerce platform of their own. Now Amazon is essentailly trying to make itself Target? Why?

Can someone explain this to me?

Whole Foods is a profitable high-end organic supermarket in its own right. We have a branch in London which is huge and full of excellent high-price stuff. It offers one hour delivery to anywhere in central London (millions of customers.)

This is a good investment in its own right.

Once Amazon can also make it a pick-up point for Amazon stuff, and piggy back Amazon deliveries on top of the Whole Foods deliveries, they will be cooking with gas.

I don't think this will work everywhere, but a similar model is being rolled out by Waitrose, for example, which offers free delivery of its John Lewis department store range to local Wairose supermarkets, and also offers Waitrose delivery to the home, and John Lewis delivery to the home.

Set this against the background of a groundswell of opposition to the gig economy that is the basis of cheapo Amazon delivery runs and it makes even more sense.

Obviously this is all from a UK perspective. Things may be a lot different in the USA.

KK has the right of it. Whole foods makes more than enough money that they won't be a burden on Amazon, and at the same time people will probably spend more due to the fact that they are mixing it in with their groceries. It's impulse shopping taken to the next level.

It also showcases how successful Amazon's delivery service is. Now they are expanding to the physical side of it, which should increase their profits.

Investors certainly seemed to like it- Amazon shares rose 3% despite the fact that the stock of the acquiring company typically declines a bit. Remember, too, that Bezos bought the Washington Post in 2013 and turned it profitable.

 Easy E wrote:

I am not buying what the article is selling.

What you're buying doesn't matter.

AmazonFresh has been around for ten years, and apparently proven out the viability of the online grocery model well enough that Amazon sees the potential in buying a big name store that is also doing online grocery. As I understand it, it's been a big hit in cities like New York, which are rather under-served by local physical grocery retailers.

That's all the explanation needed, really.

Simple. It buys amazon access to a market that they don't currently have. High end groceries. It's a huge market, but at the moment their groceries are stuck trying to compete with the big box stores by being cheaper, which doesn't seem sustainable. They get to buy in to a high profit market that would otherwise be wary of buying from amazon.

 Easy E wrote:
Can someone explain this to me?

It's just what the article says: Amazon gains access to a market that doesn't work well with online shopping (because groceries are perishable items), in the form of a business that is already successful, and also gets to use the existing infrastructure to help their online business. Even if the "ship to a Whole Foods store" option is rarely used it costs Amazon essentially nothing to implement it, and it might become a big thing. The reason why this isn't duplicating Walmart/Target/etc is that the items being sold in the physical stores are completely different. Those stores have a core business of being generic retail stores, with vast amounts of space dedicated to products that can easily be bought online. Sure, they have some groceries, but none of the high-end stuff that would draw customers from a large area like a Whole Foods store might. But Amazon doesn't have this problem, they're spending nothing on physical shelf space for anything besides groceries and don't fall into the same trap as Walmart/Target/etc.

Long logic short; large profitable company buys smaller profitable company to make more money.

In the end it will just be Google and Amazon that own everything.

 NinthMusketeer wrote:
Long logic short; large profitable company buys smaller profitable company to make more money.

In the end it will just be Google and Amazon that own everything.

And apple. Google and Amazon will have the markets in data and goods, Apple will just have a huge pile of cash, Scrooge mcduck style.

 Bookwrack wrote:

 Easy E wrote:

I am not buying what the article is selling.

What you're buying doesn't matter.

AmazonFresh has been around for ten years, and apparently proven out the viability of the online grocery model well enough that Amazon sees the potential in buying a big name store that is also doing online grocery. As I understand it, it's been a big hit in cities like New York, which are rather under-served by local physical grocery retailers.

That's all the explanation needed, really.

Sure, but part of what made them successful was their lack of overhead with physical locations. They just tied themselves back to the liability that is sinking other retailers. They basically bought into and evaporated their own competitive edge.

I am not arguing that delivery of groceries is not successful, because it is. I am arguing that tying themselves to brick and mortar again is adding the costs that they had successfully avoided and now actually levelled the playing field with other similar competitors. They have the same brick and mortar costs now as everyone else.

Maybe they have grown so large now, that those types of capital expenses do not matter anymore? I do not know.

Whole Foods makes money. In what way does it cost Amazon money to own Whole Foods?

 Bookwrack wrote:

 Easy E wrote:

I am not buying what the article is selling.

What you're buying doesn't matter.

AmazonFresh has been around for ten years, and apparently proven out the viability of the online grocery model well enough that Amazon sees the potential in buying a big name store that is also doing online grocery. As I understand it, it's been a big hit in cities like New York, which are rather under-served by local physical grocery retailers.

That's all the explanation needed, really.

Indeed. Though it's doubtful weather there can be much expansion of that model. Online grocery delivery is a pretty niche market. It pretty much only works in dense urban areas, so it's potential market is limited in the US since as soon as you leave the inner cities you're competing with regular grocery stores and a population that is more capable of shopping there. Now the real place for online grocery delivery is places like China and Japan where you have truly massive urban populations in very dense areas. In the US, you'd be pretty much limited to New York, LA, and San Francisco metro areas. Enough to make it a viable business, but you wouldn't be able to expand much beyond those areas due to the demographics.

And as mentioned, Whole Foods is a good diversity move. Their grocery delivery service is mostly competing with cheaper sources of food. Whole Foods is extremely high end expensive products. This way you have a diversified portfolio. They can deliver cheap food in the few areas where Costco, Walmart, and Krogers don't have much presence with online ordering, and in areas where those giants are roaming they can fill the high end niche.

 Kilkrazy wrote:
Whole Foods makes money. In what way does it cost Amazon money to own Whole Foods?

Well they didn't buy them for free

 Easy E wrote:
They have the same brick and mortar costs now as everyone else.

But, again, they don't. They aren't buying brick and mortar space for their core products, they're purchasing the space already used by their new grocery business. They can still take advantage of the same low operating costs for that core business, while their competition is still trying to sell the same products in brick and mortar stores. And the only product line they're buying brick and mortar space for is one that is guaranteed to stay profitable because it can't be moved online. This is essentially a zero-risk decision by Amazon as long as they can keep Whole Foods a profitable business.

 Easy E wrote:
I admit, I do not get why they would do this at all? Target does this exact thing the article talks about and they have been struggling lately. They had no answer to the Amazon question despite having a very good E-commerce platform of their own. Now Amazon is essentailly trying to make itself Target? Why?

Can someone explain this to me?

Well, Target did kinda shoot themselves in the foot a couple years ago with a hilariously botched Canadian expansion.

 Peregrine wrote:

 Easy E wrote:
They have the same brick and mortar costs now as everyone else.

But, again, they don't. They aren't buying brick and mortar space for their core products, they're purchasing the space already used by their new grocery business. They can still take advantage of the same low operating costs for that core business, while their competition is still trying to sell the same products in brick and mortar stores. And the only product line they're buying brick and mortar space for is one that is guaranteed to stay profitable because it can't be moved online. This is essentially a zero-risk decision by Amazon as long as they can keep Whole Foods a profitable business.

And they also just expanded the potential Whole Foods customer base by a huge margin.

The same supply line that brings the food into the physical Whole Foods stores can now be tapped into by Amazon to deliver the same products to online customers at a minimal cost.

 Grey Templar wrote:

 Bookwrack wrote:

 Easy E wrote:

I am not buying what the article is selling.

What you're buying doesn't matter.

AmazonFresh has been around for ten years, and apparently proven out the viability of the online grocery model well enough that Amazon sees the potential in buying a big name store that is also doing online grocery. As I understand it, it's been a big hit in cities like New York, which are rather under-served by local physical grocery retailers.

That's all the explanation needed, really.

Indeed. Though it's doubtful weather there can be much expansion of that model. Online grocery delivery is a pretty niche market. It pretty much only works in dense urban areas, so it's potential market is limited in the US since as soon as you leave the inner cities you're competing with regular grocery stores and a population that is more capable of shopping there. Now the real place for online grocery delivery is places like China and Japan where you have truly massive urban populations in very dense areas. In the US, you'd be pretty much limited to New York, LA, and San Francisco metro areas. Enough to make it a viable business, but you wouldn't be able to expand much beyond those areas due to the demographics.

And as mentioned, Whole Foods is a good diversity move. Their grocery delivery service is mostly competing with cheaper sources of food. Whole Foods is extremely high end expensive products. This way you have a diversified portfolio. They can deliver cheap food in the few areas where Costco, Walmart, and Krogers don't have much presence with online ordering, and in areas where those giants are roaming they can fill the high end niche.

 Kilkrazy wrote:
Whole Foods makes money. In what way does it cost Amazon money to own Whole Foods?

Well they didn't buy them for free

They bought an asset which makes money. That's why the asset was worth paying money for.

 Easy E wrote:
They just tied themselves back to the liability that is sinking other retailers.

Apples and oranges comparison, but I'm gonna use it anyway. . . Ford bought Lincoln many many moons ago, it hasn't held them back. They've also bought Jaguar many years ago, didn't hold them back. Same thing with Mazda. Heck, in the case of Mazda, there's still people who think they are genuinely Japanese cars, and not a subsidiary of Ford.


As others are pointing out, Amazon is consolidating one small facet of their larger operation into a company that, we presume, will retain it's whole foods logo/name. I would imagine that this move is similar to auto manufacturers taking over another one. Sure, we know that a company like Toyota and Lexus are the "same" but they operate largely at different facilities and to different markets.

It is probably due to customer synergies more than anything. Some data mining boffins noticed that Amazon Prime customers are very likely to also be Wholefoods customers, someone made a presentation that said synergy and market integration a bunch of times, then Bezos said someone sagelike, perhaps something like "Positive, synergised business is built through synergised reputation, earned through positive business experiences". And then the deal was done.

 jmurph wrote:
Investors certainly seemed to like it- Amazon shares rose 3% despite the fact that the stock of the acquiring company typically declines a bit. Remember, too, that Bezos bought the Washington Post in 2013 and turned it profitable.

Maybe sort of. WaPo is now privately owned, so any profit figures are self-reported and don't have to follow IFRS. Some efforts to unpick performance based on that self-reported data has suggested, with much speculation, that WaPo is probably benefitting from some fairly generous recognition of revenue. It doesn't really matter. Bezos sees WaPo as a loss leader, an important way of expanding the profitable parts of the business and improving the Amazon brand as a whole. If it is dollied up to show a small profit it is just part of the same process, establishing Bezos as a superguru of business.


Automatically Appended Next Post:

 Easy E wrote:
Sure, but part of what made them successful was their lack of overhead with physical locations. They just tied themselves back to the liability that is sinking other retailers. They basically bought into and evaporated their own competitive edge.

I am not arguing that delivery of groceries is not successful, because it is. I am arguing that tying themselves to brick and mortar again is adding the costs that they had successfully avoided and now actually levelled the playing field with other similar competitors. They have the same brick and mortar costs now as everyone else.

Maybe they have grown so large now, that those types of capital expenses do not matter anymore? I do not know.

But not all bricks and mortar retail stores are in decline. It's only been the discount end, where largely generic goods are sold in large retail stores that compete with each other on price alone. K-Mart, Target, Macys, these are places that had little brand, where shopping was a chore done because they offered the lowest price. Those places have been slaughtered by on-line shopping, which is cheaper and not necessarily any more fun, but at least can be done quicker and without having to put any pants on.

But retail built around brand and shopping experience is still going just fine. Stores where the product brand is strong enough that price competition is weak, and where people actually want to go to the store even just to look around haven't lost much if anything to the internet. Whole Foods belongs in this category, it's why it has grown its profitability in the internet age - because the Whole Foods brand is strong enough that people will pay stupid prices for their organic, free trade, artisanal eggs, and because people actually seem to enjoy the process of shopping there.

Bezos is probably just lured to the way each company can cross promote the other, because of customer overlap. But Bezos and his guys are pretty incredible at finding value all over the place, taking strengths of a subsidiary and scaling them up company wide, and taking company wide strengths and applying them to each subsidiary.

 Kilkrazy wrote:
Whole Foods makes money. In what way does it cost Amazon money to own Whole Foods?

Whole Foods results have been disappointing the last several years. They have been a buyout target for a awhile and were facing a substantial board change. While initially they had a strategic advantage, other retailers adapted and their sales per store have been falling. Their most recent venture was to move into more conventional style grocery stores while attempting to leverage their name.

It will be interesting to see what becomes of "Whole Paycheck."


Automatically Appended Next Post:

 Kilkrazy wrote:
Whole Foods makes money. In what way does it cost Amazon money to own Whole Foods?

Whole Foods results have been disappointing the last several years. They have been a buyout target for a awhile and were facing a substantial board change. While initially they had a strategic advantage, other retailers adapted and their sales per store have been falling. Their most recent venture was to move into more conventional style grocery stores while attempting to leverage their name.

It will be interesting to see what becomes of "Whole Paycheck."

 Crazy_Carnifex wrote:

 Easy E wrote:
I admit, I do not get why they would do this at all? Target does this exact thing the article talks about and they have been struggling lately. They had no answer to the Amazon question despite having a very good E-commerce platform of their own. Now Amazon is essentailly trying to make itself Target? Why?

Can someone explain this to me?

Well, Target did kinda shoot themselves in the foot a couple years ago with a hilariously botched Canadian expansion.

Well yes. That did screw them over. However, their strategy (as well as wal-marts) has been to use the store as a "Distribution Point" just as the attached article claims Amazon will do with Whole Foods. They also have a pretty decent E-commerce section, but it is not clear that this strategy has helped them.