Whole Foods

Blockbuster news this morning: Amazon is acquiring Whole Foods for $13.7 billion.

Needless to say, this is a huge deal. My immediate thoughts are this:

This deal signifies Amazon’s entry into physical brick and mortar in a big way. The company, which has been toying around with future store concepts like its own bookstore and the Amazon Go grocery concept store in Seattle, is betting big on physical store formats in the future.

The company can no longer simply be called an online retailer. They are now truly omnichannel.

This gives Amazon a flagship store network for food (and other products) for pickup and delivery in markets around the country. The company, which has been building out its distributed pickup locker network in places like 7-11 around the country, as well as slowly expanding the reach of Amazon Fresh, now has its own nationwide network of storefronts that they can leverage in the rollout of both.

The combined company also provides an opportunity to experiment with loyalty program benefits for the company’s Amazon Prime members. Imagine Whole Foods promotions for Amazon Prime members and even having special shopping hours for members of its subscription-loyalty club. Amazon can make finally take its loyalty program and extend physical retail benefits, not unlike members of Costco or other membership stores have been doing for years.

Perhaps most importantly, the integration of Whole Foods provides the perfect format for Amazon’s future-forward shopping concepts that they’ve been experimenting with in their Amazon Go concept store in Seattle. While I don’t see Whole Foods going cashier-less anytime soon, I do think IoT-powered shopping could ease buyer friction in the purchasing process. Expect Whole Foods to become sensor-packed stores that analyze and understand their clients better than anyone. I also expect Amazon to integrate its own technologies such as Alexa into the shopping experience and even find ways to promote its own Amazon replenishment platform Dash in-store.

Of course, it goes without saying the Whole Foods customer is not the everyman, mass-market customer. The company, which pioneered the organic grocery movement in the early 1980s, attracts a high-income crowd that is willing to pay a premium for products. It’s not the Safeway or Target customer. That said, this is exactly the type of customer that already probably spends lots of money on Amazon.

It’s a good fit.

Last point: I think this deal is an admission by Amazon that continued high-growth is dependent on further expansion into physical brick and mortar. While online commerce will no doubt continue to grow, after spending a decade experimenting with Amazon Fresh, the company has learned that getting greater wallet share in areas like fresh produce and grocery requires physical store fronts, no matter how much Amazon spends on things like drone delivery.

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