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Analysis: Here’s Why Amazon & Whole Foods Make Perfect Sense

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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Google Home Adds Shopping Feature And Partnerships With National Retailers

When Google launched the Google Home voice assistant speaker, they demonstrated their commitment to the smart home and the growing trend of voice control, a trend so far led by Amazon. Taking aim at the Echo market, Google launched Home with a big vision but not as many features as enthusiasts would have liked.

Still, 2017 is the year that “works with” Google Home becomes the new “Alexa skill” and no one is counting Google out of the game. The one area where Amazon previously had an inherent lead over Google, of course, was in its powerful commerce engine. Alexa makes it easy to order items from Amazon and, if you’re a Prime member, have them brought straight to your door in two days or less.

But news last week changed that. Google announced via a blog post that it has partnered with a number of big name retailers and added the ability to voice shop from them using Google Assistant. Retail Dive has the full story on Google’s new partnerships, with brands like Costco, Walgreens, Whole Foods, Bed, Bath & Beyond and even Petsmart, Google is clearly trying to cover its commerce bases with everything from food and grocery to household and pharmacy.

Google’s blog post on the announcement gives users a quick walk-through of how to get started. With simple commands like “Ok Google, how do I shop?” Google Assistant will walk users through the process. Or you can also just say “Ok Google, order paper towels” and presumably, it will. It’s less clear exactly who you’re getting paper towels from, though it’s likely you have to set up store preferences in your Google Home account. You also have to add a credit card on file to automatically charge upon ordering.

Credit: Google

The blog also says the service is free – for now. After April 30, it appears Google may have plans to create some type of Prime-esque membership for users to be able to take advantage of voice command shopping.

Google’s massive search and data engine give Google Home inherent advantages in the long run over competitive voice assistants like Amazon’s Echo. And with this new shopping feature, they’re looking to grab some of Amazon’s native territory as well.

Food Retail AI Startup Shelf Engine Raises $800K

One of the biggest headaches for anyone purchasing food in bulk – whether it’s grocery stores or restaurants – is figuring out how much to buy. Perishable foods go bad quickly and if ordering is off, the food that’s thrown out has a direct impact on the bottom line. This problem is what led Stefan Kalb, a Seattle food entrepreneur and owner of a local sandwich and salad distributor, to create a software platform that could use artificial intelligence and predictive analytics to cut waste.

Shelf Engine is a Seattle startup that just announced an $800K seed round of funding to deliver a software platform to grocery stores and food distributors that would predict and in some cases automate perishable food ordering. The software works with the retailer’s existing system, pulling in historical sales data, profit margins and combines it with external factors like seasonality, volatility and gross profit by product to deliver precise food orders.

Reddit co-founder and Shelf Engine seed investor Alexis Ohanian commented about the startup’s potential on Product Hunt, saying:

As seed investors, we’re always excited to learn about new problems that have potentially valuable software solutions — food waste is one of them. The food industry hasn’t had the ability to solve this with software and this app helps retailers and distributors reduce their waste.

Kalb uses Molly’s, the food distributor he founded, as a case study for Shelf Engine. Molly’s distributed fresh, locally sourced sandwich, salad and deli products to local businesses and guaranteed their sales – meaning, if they didn’t sell, Molly’s refunded the retailers. And because they used such fresh ingredients, the food only had a shelf life of five days or less.

Often, Kalb found, the company was using waste data as the sole metric to predict future orders. If waste was high for one account, they’d lower the next order. If it was low, they’d increase the next order. But this method is highly problematic – according to the study, “when managers react to waste, they are reacting to a single point of data. That decision isn’t based on a cumulation of waste and deliveries.” It often led to volatile availability of their products at places like Seattle Children’s Hospital cafeteria – at times the shelves would be full, and other times they would be empty. There was little predictability for customers looking for Molly’s food at meal time.

The company then began using Shelf Engine, which generated a probability model for all ten of their accounts. Basically, the model looked at the likelihood of products selling or products being wasted at any given level of availability and would then find the maximum between the two.

After using Shelf Engine for just a few months, the company saw a 7% leap in profitability.

Kalb opened Molly’s at the age of 23, with a degree in actuarial science and economics and on a 2014 ski trip with friend and engineer Bede Jordan found themselves wondering why the processes and systems in the food industry were so outdated.

 Could we create a platform that enables retailers to buy food and eliminate significant waste?  Could we create a platform that eliminates redundant busy work between vendors and retailers?  Could we create a more perfect marketplace?

These questions led the pair to create a product that would move the food industry towards more efficient systems using technology. Jordan himself is a former engineering lead at Microsoft who worked on HoloLens, an augmented reality technology. He will now lead the development of Shelf Engine as its CTO.

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