Viewpoints

Amazon and Whole Foods in Coming Battle?

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The latest version of SN’s Power 50, our annual roster of the most influential industry players, includes a new element called "The Trending Ten."

This is a sub-list of the most talked about people right now. Two on that list are CEOs of Amazon.com and Whole Foods Market.

It would seem that being on SN’s list is about the only thing these two have in common, given the different business models of their companies.

But lately there’s more, as both operators may soon be involved in a new type of food battle.

Amazon’s food service, AmazonFresh, is on the expansion path with a relatively pricey home shopping service that includes same-day delivery. It just entered the Los Angeles market with a model that carries an annual fee of close to $300.

While all food retailers need to be mindful of this, it is upscale players that may have the most to worry about in the near term.

Consider this point from Keith Anderson, vice president, RetailNet Group:

For the time being, in light of its high fees in L.A., AmazonFresh "will not have a high impact on mainstream or discount grocers. It’s targeted more at Whole Foods and Costco shoppers. I would worry more if I were at the higher end."

That comment, which appears in the Power 50 article about Amazon’s CEO, points to a possible battle as AmazonFresh pushes ahead.

Whole Foods is certainly aware. It recently said it will unveil specifics related to online ordering and delivery strategies in the near future, a program that is expected to focus on store pickup.


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Meanwhile, in this week’s Power 50 article about Costco, one observer contended that the membership warehouse club operator needs to focus on the potential competition from Amazon’s same-day delivery ambitions, as well as the lower prices enabled by Internet shopping.

The AmazonFresh challenge won’t play out quickly because at this point it’s still only confined to a couple of markets. But Amazon isn’t the kind of competitor you want for one important reason: It doesn’t need to make money on groceries alone, because its model focuses on bundling a variety of items for deliveries.

While there’s a legitimate debate about the ultimate impact of home shopping, it seems there’s surprisingly little discussion among traditional food retailers about how to address this challenge. You can bet that in future years Power 50 will increasingly be populated by people who are coming up with answers.

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Discuss this Blog Entry 2

on Jul 16, 2013

In some respects, Amazon Fresh’s strategy for taking the high price approach makes it easier for retailers to delay addressing this very important question. Our own research shows that almost 15% of grocery shoppers bought at least some grocery products online in the last 30 days and most of that online purchasing was not done with the retailer for whom we were studying their customer shopping behavior.

Our thinking is that the preparation for the online challenge deals more with developing digital connections with shoppers than on actually providing an online option, although that will ultimately be important to some shoppers

Matthew May (not verified)
on Aug 4, 2013

Shopping for comoditized groceries is a niche Amazon may be able to exploit the most initially. There is still a strong emotional connection in shopping for fresh products in person. Younger generations who have grown up around the computer more so than the family kitchen table will be Amazon's strongest customer base and the largest threat to traditional grocers. So long as Whole Foods and the other main stream grocers can expand their multichannel marketing while maintaining their positive emotional connection with their customer they will be able to complete.

I don't think that most of Trader Joe's customers would prefer to have their items delivered all of the time just for the convenience factor. If this were the case we would all avoid their parking lots and shop elsewhere. That being said the balance will shift over time and those retailers who can't provide an expanded platform of value to the consumer will feel it on their bottom line.

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Julie Gallagher

Julie Gallagher’s delicious foray into coverage of the food industry was purely accidental. With a background in technology, she joined Supermarket News as associate editor of its Technology...

Mark Hamstra

Mark Hamstra is the editor of the Retail/Financial section of Supermarket News covering mergers and acquisitions, quarterly earnings reports, executive changes and other significant events and trends...
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