A few thoughts by John Nalivka: The new sheriff: Amazon
September 12, 2017
You might say Amazon's entry into the retail grocery business is like saying there's a new sheriff in town. Amazon is not only going to change grocery retailing, they could well be the instigator of significant changes to the beef industry beginning with niche beef markets, i.e. natural, organic, and grass-fed. So, how is this going to happen?
Well, the ink on deal for the sale of Whole Foods to Amazon was barely dry when Amazon announced they didn't need to make money selling food. While that seems to be a rather shocking statement from a company that just got into the food business, one has to remember that Amazon has a completely different business model called online retailing. In today's mixture of marketing and technology, it doesn't take too much imagination to see how online retailing is bound to reshape how consumers buy groceries just as it has reshaped other retail business. Online shopping has taken on a life of its own and will continue to grow and impact every product sold in America. There were businesses that didn't believe it and have suffered significantly.
Whether Amazon needs to make money selling groceries remains to be seen, but they may just know something the rest of don't know about P & L statements. Their stock price might be an indicator. Let's consider the implications of the change that may be upon the beef industry.
To me, one change is in pricing of niche beef items, i.e. natural, organic, and grass fed. Amazon specifically named ground beef as an item marked for discounting. That will be good because consumers will buy more – right? That might be the case if we weren't talking about a niche product that carries a notable premium. The higher cost paid by the consumer provides the value added premium that flows to the producer and motivates him/her to produce for that market. Take the premium away and things are likely to change.
It may be too early to predict the outcome of Amazon buying Whole Foods. But, one thing is certain, Amazon is a disrupter. When disrupters enter the market, it is best to pay attention and be open-minded to potential change which may increase your risk but might just also create opportunities.