Whole Foods Becomes Part of Amazon: How Will This Impact the Industry?

As part of an ongoing effort to become a one-stop shop for just about everything, Amazon entered the world of grocery retail with the addition of Whole Foods to its portfolio. For Amazon, it was an atypical move into the domain of bricks-and-mortar retailing. What might this mean for the grocery business as a whole?

So great is the influence of Amazon, the mere filing of a trademark for prepared food kits immediately drove down the stock value of Blue Apron Holdings, the former darling of the meal-kit delivery business. It should not come as a surprise the purchase of Whole Foods caused a similar reaction with SuperValu, Sprouts, and Kroger (the 5th largest grocery chain in the world) shares dropping in value by as much as 14% after the announcement of the takeover.

The effects of the purchase, which went through at the end of August, were immediately obvious in the more than 450 Whole Foods stores. Prices on many grocery items were reduced, signs promoting sales and “new lower prices” sprouted everywhere, and stacks of Amazon Echo devices suddenly appeared in grocery aisles. It was a quantum shift in presentation for what had been a niche retailer where shoppers went in search of higher quality products, not lower check-out totals.

Going forward, the challenge for competitors will be to try and match Amazon in terms of integrating digital and physical retail strategies – a tall order considering the relative sluggishness of grocery retailers to evolve, compared to the relentless innovation that has driven Amazon from the beginning.

Early indicators are that U.S. consumers are reacting favourably to the changes at Whole Foods, with JPMorgan Chase reporting traffic at the retailer was higher during a four-day period in September 2017 than at any point in the past three years.

In Canada, Whole Foods has a small presence, with just 13 stores split between British Columbia and Ontario. Amazon, however, is within reach of every Canadian with an internet connection. In 2016, Amazon generated over $3.5-billion in e-commerce sales in Canada, according to BMO Nesbitt Burns. So, while an Amazon-owned bricks-and-mortar grocery chain in Canada may not heavily impact the landscape of traditional grocery buying, e-sales could pull organic food into the mainstream.

On the whole, organic food products carry a higher margin than their non-organic counterparts; the Amazon braintrust knew what it was doing when it chose this category as its point-of-entry into the market. To date, large grocery chains trying to go online in Canada have had limited success. Perhaps this reversed partnership – a small chain with an e-commerce juggernaut – combined with a more profitable product array will be the magic combination that convinces Canadians to buy organic en masse and puts online grocery shopping on the map.

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