Amazon acquires Whole Foods and opens new doors for food e-commerce
October 5, 2017
Is online grocery shopping the wave of the future, the new reality for shoppers or both? It all depends on where you live. Amazon is keen to become the leader in the United States in providing an online food marketplace for its consumers, and the company has already made huge strides in offering consumers their favorite foods delivered to their front door with just the click of a button.
In June, Amazon acquired Whole Foods for $13.7 million, officially bringing the popular grocery chain's selections to the online shopping site. Amazon sweetened the deal by offering special savings and in-store benefits for Amazon Prime shoppers while also lowering prices for many food items such as Whole Trade bananas, organic avocados, organic large brown eggs, organic responsibly farmed salmon and tilapia, organic baby kale and baby lettuce, animal welfare-rated 85 percent lean ground beef, creamy and crunchy almond butter, organic Gala and Fuji apples, organic rotisserie chicken and 365 Everyday Value organic butter, just to name a few.
"We're determined to make healthy and organic food affordable for everyone. Everybody should be able to eat Whole Foods Market quality — we will lower prices without compromising Whole Foods Market's long-held commitment to the highest standards," said Jeff Wilke, CEO of Amazon Worldwide Consumer, in a press release at the time of the acquisition.
The news of this acquisition rocked competitors in the food business arena, and according to Supermarket News, "Reaction to the deal on Wall Street was murder on some public grocery stocks like Kroger (down more than 10 percent), Smart & Final (down 16 percent), Supervalu (down 13 percent), United Natural Foods (down 8 percent), Sprouts Farmers Markets (down 8 percent) and Wal-Mart Stores (down 5 percent)."
This is just the beginning for the online retail giant, and food e-commerce is officially the trend to watch, says Keith Schneller, consultant for eBridgeAsia, LLC, who works closely in this arena in the Chinese marketplace.
"I help companies develop e-commerce channels in China, and we are seeing a great deal of development in China with online food sales," said Schneller. "I see such great potential in food e-commerce, not just in China, but in the U.S., as well. Amazon's acquisition confirms my belief of this growing trend."
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According to Goldman Sachs' Equity Research for February 2017, "Online supermarkets, omni-channel sales, and lower-tier cities add up to the next phase of e-commerce growth in China China's online retail market will be US$1.7 trillion by 2020, more than twice the size it is today. We see growth being propelled by expansion of online categories, including supermarket items, supported by the nationwide same or next-day delivery infrastructure build-out, and further online penetration of existing categories (apparel, electronics) into lower-tier cities and rural areas.
Schneller sees China becoming the real breakout leader in the advancement of food e-commerce; however, he says there will soon be ample opportunities for U.S. beef and dairy producers to market their products overseas.
"We are coming full circle where we used to have the milkman deliver milk directly to our doors," said Schneller. "Today, people can shop online, place their order using subscription services and save shopping time and money. In China, there are still some food safety concerns with what they can access in the marketplace, so they have more confidence in shopping online and knowing what they receive will be safe. Because of the dense population, it's really easy to deliver products same-day or next day. For general commodities, Chinese consumers are starting to skip the middleman and companies are selling directly to consumers. By using these e-commerce channels, we can get away from pure commodities and market branded products. This is where the opportunity for U.S. producers lies. It gives Americans the opportunity to promote their brands and market to more people, both online and offline."
Schneller says that Amazon's acquisition of Whole Foods and its perfection of technological and distribution expertise could lead to lower prices of all conventional products in the future, which could in turn lead to greater efficiencies from U.S. suppliers and a larger reach with consumers. For example, Schneller says Tyson, Cargill and Smithfield are slowly starting to use e-commerce channels to market products, which will create new opportunities for pork, beef and poultry production in the U.S.
"As e-commerce takes off in China, I believe the U.S. will not only be able to continue to market unwanted cuts and offal products, but higher-end steaks and burgers can also be available to the Chinese as their disposable incomes increase," he said. "We'll also see more and more Americans shopping directly from the comfort of their homes with the option of picking up at a temperature controlled facility or locker or have it delivered directly to their doors, but we still might be a few years ago given how spread out the U.S. population is. We will see this take off in urban areas a lot quicker than in rural."
In small-town USA, chains like HyVee and Coborns are working to keep up with the digital trends by offering new avenues for their customers to shop. In 2015, the HyVee stores in Sioux Falls launched its "Aisles Online" program, allow shoppers to make purchases online with an option for pick-up or delivery.
Meanwhile, Coborns is applying a multi-tiered approach to reaching its customers through its digital platform.
"On our websites and social media pages, we provide our guests with recipes, food blogs, videos and more to help them plan their meals," said Kevin Hurd, Coborns communications and engagement specialist. "We're also rolling out meal kits to our brick and mortar stores and currently offer them through CobornsDelivers, an online ordering and grocery delivery service in the Twin Cities. We deliver the kit through our CobornsDelivers online ordering and delivery service. We want to be the preferred choice in the e-commerce space. We do this by building relationships with customers – our CobornsDelivers drivers even carry dog treats with them on their routes!"
Hurd says the company has focused on creating a user-friendly platform that will ultimately save consumers time and money. Yet, even with the advancements in online shopping, he says Coborns knows the physical stores are important hubs for small communities.
"Whether they are using CobornsDelivers or using the online ordering and pickup service we offer at some of our locations, our hope is that they realize they now have up to 1-2 hours of time back that can be used for something they enjoy," said Hurd. "Although e-commerce is an exciting and growing area, we have not lost sight of investing in our brick and mortar locations. We have 53 grocery stores under the Coborn's, Cash Wise, Marketplace Foods and Save-A-Lot banners across Minnesota, North Dakota, South Dakota, Wisconsin and Illinois. We want to create a unique shopping atmosphere for our guests which starts with remarkable service. In many of our communities, the grocery store is also one of the centerpieces of the community. We want to ensure we are providing our guests with a great assortment of items to choose from when they come in to shop our stores."
An informal Facebook poll asked consumers their thoughts on Amazon Prime's latest advancements in food e-commerce, with many expressing a strong interest in shopping online for groceries.
"I have a Whole Foods near my office that I go to often," said Luke Cardona, from Minneapolis, Minn. "I rarely get groceries there because of the higher prices, but I do buy lunch there often. I've heard that Amazon will lower the prices in the stores. I always tend to look for the most convenient way to buy my goods. I use Amazon Prime often and have used Prime Now a few times, as well. Traffic, parking, and allotting time for certain errands is difficult in the city, so if Amazon offers a solution, I will likely use it. I already use Prime and Walmart.com to order a lot of household goods and non-perishable foods because it can be delivered directly to my door. I still shop in brick and mortar grocery stores for the bulk of my groceries. It's still cheaper."
"Amazon will have many of us utilizing the service," said Mark Jewell, of Omaha, Neb. "I am told they are prepared to lose money on the grocery market until they have a firm hold on marketshare. From anywhere in my life I will be able to speak to Alexa and add things to my next order. Our family will only expand our Amazon use."
"I only use online grocery shopping for limited number of specialty items that aren't available in grocery stores here," said Amanda Larsen, of Wolsey, S.D. "Though I enjoy the convenience of online shopping, I will continue spending the strong majority of my money locally as these stores are vital to the economy of our small community."
Heidi Berg, of Mount Vernon, S.D., agreed, saying, "I'm probably not going to buy my groceries online through Amazon; I'm going to still support our local grocery store in town."
The added convenience, time saving and ability to see deals with the click of a button, food e-commerce is certainly a channel to watch, and the agricultural industry in the U.S. would be wise to get in on this emerging trend.
Attached mugshots (courtesy photos):
Kevin Hurd: "Although e-commerce is an exciting and growing area, we have not lost sight of investing in our brick and mortar locations," said Kevin Hurd, Coborns communications and engagement specialist.
Keith Schneller: "We are coming full circle where we used to have the milkman deliver milk directly to our doors. Today, people can shop online, place their order using subscription services and save shopping time and money," said Keith Schneller, consultant for eBridgeAsia, LLC.