June 19, 2017

AMAZON EATS WHOLE FOODS: Why M&A Strategy (And Your Retail Experience) Just Changed Forever.

Amazon’s purchase of Whole Foods is truly in a class of its own. None of the conventional reasons can explain the acquisition. For one, Amazon won’t be consolidating the grocery sector. By the end of 2016, Walmart commanded the lion’s share with 14.45% in the food and grocery market. Whole Foods had a paltry 1.21%, while Amazon’s share was negligible at 0.19%. The product categories between Amazon and Whole Foods are also so distant that it’s hard to imagine a viable “one-stop shopping” strategy. It’s unlikely that quinoa lovers would pick up an e-reader or set of Wi-Fi speakers while shopping at Whole Foods. And Whole Foods itself is definitely not going to disrupt Amazon.

Still, with Whole Foods under its belt, Amazon could take its retail experimentation to a whole new level. Famous for the “test and learn” approach, CEO Jeff Bezos has been opening physical bookstores and cashier-less convenience stores. Upon visiting any of Amazon’s bookstores, one would discover the unusual tweaks everywhere; each book is positioned with its cover exposed, rather than showing the spine, as is customary in a traditional store. Small black cards are placed below each book with customer review data pulled from Amazon’s website.

“We love that mixture between creativity and data, and understanding our customers and continually trying to learn how we can make a better store for them,” Jennifer Cast, VP of Amazon Books, told Geekwire. But these physical stores are not merely distribution channels; there are only a few of them. They are research laboratories.

I’ve joked that “synergy” is the word CEOs use to rationalize a merger with no real business case or whose numbers just don’t add up, so it will be interesting to see what Bezos is actually up to with Whole Foods and whether he can make it work.