Amazon Buys Whole Foods: What are the Implications for Ecommerce?

When Amazon recently announced that it was buying Whole Foods for $13.4 billion, the world’s leading natural foods grocer, many observers were shocked. Although Amazon had been making inroads into food and groceries with Amazon Fresh, this is an unprecedented partnership between what are, on the surface, two very different business models. This has profound implications for the future of ecommerce.

The Merging of Online and Offline

One of the most significant aspects of Amazon acquiring Whole Foods is that its evidence that the line between ecommerce and traditional retail is rapidly fading. Whole Foods has faced some challenges in recent years, due to various factors. Although still a recognized leader in areas such as organic produce, natural foods, and self-care products, its grip has been slipping recently. One reason for this is that its been facing stiff competition, especially from retail giant Walmart, which is grabbing an ever larger portion of the natural foods market. At the same time, Whole Foods has a large and loyal customer base.

By acquiring Whole Foods, Amazon is now establishing a strong presence in the brick and mortar retail market. At the same time, Amazon is also trying to disrupt the public’s entire attitude towards shopping for food. Whole Foods, in addition to carrying many leading brands in the natural foods sector, also has its own house brand, 365, which includes a wide variety of products – not only foods but also skin care, hair and cleaning products. Amazon, as the leading online shopping site, is now in a position to sell many of these products online. Of course, this isn’t just a matter of marketing these items; it will require facilitating a major shift in people’s attitudes.

Changing Attitudes About Shopping Online

Amazon has greatly expanded our ideas about shopping online. Starting out as a bookseller, the innovative company has wildly succeeded in getting people accustomed to buying everything from shoes to vitamins online. Of course, Amazon hasn’t done this alone but it’s certainly led the way. Groceries, however, are another matter. People still aren’t accustomed to buying staples online, for both practical and psychological reasons. For one thing, there’s the freshness factor. It’s no accident that Amazon called its first venture into this area Amazon Fresh, promising people fast delivery and fresh goods.

Amazon Fresh is also another example of online merging with offline, as there are now two physical Amazon Fresh stores in Seattle.

This, however, is still a limited venture, only available in select cities with a high population density. It’s one thing to deliver fresh groceries to people in New York City or London and something else altogether to deliver to rural areas in the heartland, places where Walmart dominates. Yet, if anyone can overcome these challenges, its Amazon. With enough distribution centers, it’s possible that Amazon will eventually be able to deliver fresh groceries in all but the most remote locations. The question remains, however, if people actually want this.

There are both pros and cons to buying groceries online. On the one hand, it’s convenient, lets you avoid the hassles of the checkout line and, in many cases, helps you save money. On the other hand, it’s practically ingrained in our DNA to shop in person. Travel to traditional markets all over the world and you’ll see archetypal scenes of people scrutinizing vegetables, fish, and meat to choose the freshest and most appetizing specimens. To a great extent, this tradition persists even in large suburban grocery stores. There’s also a social element to shopping as people see familiar faces. For some, it’s an excuse to get out, get at least a little exercise.

The Emerging  Hybrid Model

In all likelihood, physical stores will never be obsolete. Amazon recognizes this. Amazon didn’t buy Whole Foods with the intention of shutting down the retail locations. The plan, rather, is to gain a foothold in brick and mortar while expanding its online markets. It may be tempting to think of online and offline shoppers as distinct markets but this isn’t actually the case. Most often, the very same people shop both online and offline, perhaps even for the very same products.

As the internet and mobile technology pervade more and more of our daily lives, traditional distinctions are breaking down. People are hardly ever totally “offline.” Many brands are incorporating digital technology into their retail stores. With Amazon Fresh and the Whole Foods acquisition, Amazon is accelerating this traditional division. In the future, it’s likely that people will be able to combine these two modes with ease. At the Amazon Fresh retail locations in Seattle, customers can order online and choose between getting the items delivered or picking them up in person. If they choose the latter, they don’t even have to enter the store; the order is brought directly to their vehicle! Although this is a new and experimental model, it’s likely a portent of things to come.

Amazon and Whole Foods: Just the Beginning

Although Amazon buying Whole Foods is a momentous deal, it shouldn’t be viewed as an isolated event. This is just the beginning of several much larger trends. For one thing, there’s no reason to assume that Amazon will stop with Whole Foods. They may very well expand into other traditional retail markets. This will also have a huge impact on the entire food industry. If people start ordering more groceries online, large chains will have to start offering their customers this option or risk losing out to Amazon. Walmart is also expanding its online grocery pickup services. Like Amazon, these services are only available in select cities, but this is likely to increase significantly in the near future.

Amazon purchasing Whole Foods may very well be a major turning point in the way people shop for groceries and other everyday staples. While there are still significant challenges in this area, once people get comfortable with the practice, it’s only a matter of time before solutions emerge.

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