Last week’s announcement that Amazon has purchased Whole Foods is positioned to shake up the grocery world.
We all know that Amazon is the most powerful retailer online. They’ve achieved this by providing a customer service experience that’s second to none, a critical aspect of how consumers judge retailers. So why did this online giant invest over $13 billion in a business that functions almost entirely in physical stores?
The grocery business is enormous, about $675 billion per year in the U.S. alone, and as such, is much too big for Amazon to ignore. But all retailers with physical outlets have been experiencing disappointing results and an uncertain future as more and more consumers turn to online shopping. The grocery business needs to follow that trend, but has been hampered by consumer behaviour; namely, that we like to pick out our own perishables. Add to that the expense of delivering groceries, which cuts into the very tight margins of grocery retailers, and the industry has been slow to adopt online technologies.
But the Whole Foods acquisition may change all that. As the technology leader in retail, Amazon is arguably best suited to succeed in online grocery. They understand that there are two distinct channels to reach consumers—virtual and physical stores—and they need to work together simultaneously. To succeed in the grocery space, online alone won’t work; what’s needed is a mutually beneficial arrangement between the two channels.
It’s too early to say if the Amazon/Whole Foods experiment will work. But the need for grocery stores to combine with a strong online presence has clearly arrived and, as marketers, we will watch with interest to see if they can successfully integrate and maintain a consistent customer across both channels.