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Daily news and analysis about the food tech revolution

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Whole Foods Added to Amazon Prime Day, Which is Now 36 Hours

Experiencing Amazon Prime Day this year will be like entering some Star Trek-ian alternate dimension of deep discounts, as the company is expanding it through both time and space. Amazon announced today that its big bargain bash will begin on July 16th at noon Pacific Time and last for 36 hours (up from 30 last year). And this year, it will move beyond the screen and into the real world with the inclusion of Whole Foods.

For the uninitiated, Amazon Prime Day is a play by the retailer to get people to flock to its site throughout the day to watch a steady stream of products they don’t want or need get marked down. (We recommend following The Wirecutter, which monitors the deals all day and alerts you to the genuinely good offers.) While the sale starts in earnest later this month, some Prime deals are already available on Amazon products like the Echo Show and for services like Amazon Music and Audible.

But for our purposes here at The Spoon, we are watching to see how Whole Foods, which Amazon acquired last year, will fit into the mix. Prime members already get free two-hour delivery and member-only discounts. According to the press release, on Prime Day Prime members will get an “additional 10 percent off hundreds of sale items throughout Whole Foods Market stores, and deep discounts on select popular products.”

All of this is important to consider as Amazon’s purchase of Whole Foods cast a giant shadow over the entire grocery sector. Rivals like Walmart, Krogers and Albertsons have been forced to make their own partnerships and investments in delivery and logistics to try and fend off Amazon.

But Whole Foods isn’t just about selling food for Amazon; it’s also a venue for selling Amazon Prime memberships (which is already at 100 million subscribers). Adding Prime members fosters more loyalty and begets more sales at Whole Foods (and on Amazon), discouraging customers from shopping elsewhere. Additionally, Whole Foods stores serve as pop-up locations for Amazon to showcase its own technology, like the Echo line of Alex voice assistants… which can be used to shop for groceries by just talking. Or Amazon can use it to educate people about Amazon Ring smart doorbells and Amazon Key in-home or in-trunk delivery.

Further out, driving people to Whole Foods locations allows Amazon to collect even more data about its customers and their purchasing habits, which can be used and monetized through its various divisions. One also has to imagine it can surreptitiously take advantage of said data to further its futuristic cashier-less store technology.

The counter to all this, is how will the traditional Whole Foods customer react to this new dimension of Amazoninification? Will they be turned off by all the tech and Prime messaging?

And while in its own dimension Star Trek had its Prime Directive to not interfere with the development of civilizations, Amazon’s Prime Day is poised to keep growing until it becomes the basis for our new civilization.

We’re kidding.

We hope.

Why Amazon Needs Automation To Drive Retail Profit

Amazon is one of the biggest retailers in the world, with total value at the end of 2016 surpassing the value of other U.S. retail giants like Wal-Mart, Kohl’s, Target, Sears, Macy’s and Nordstrom’s combined. So at $355.9 billion market value, it’s a little surprising to see Amazon continue to post slim profit margins on its e-commerce sales, by far the largest portion of the company’s business. Amazon’s continued investment and exploration into things like automated grocery stores and drone delivery start to make even more sense when you dive into their 2016 numbers.

A recent peek into their annual filing by Bloomberg reveals some interesting stats around Amazon’s subscription and cloud services, big growth areas with much higher margins and less overhead than retail goods. Where retail margins are low, largely due to the high costs of shipping, subscription fees (including Prime) are growing at 40% annually. In 2016, Amazon brought in $6.4 billion from Prime and other subscription services such as e-books and movie rentals – a little less than the company spent on net shipping costs for the year.

Credit: Bloomberg

People flock to Amazon for their value on retail products but also their convenience – whether it’s fast shipping, greater availability or the ease of ordering on non-traditional platforms like Amazon’s Echo voice assistant or Dash button subscription service. But the company’s commerce volume only slightly makes up for the high cost of shipping those products around the globe.

Amazon is investing in higher margin areas of its business, like Amazon Web Services, which boasted almost 25% profit margins in Q4 of 2016, compared with retail’s 3%. But the company is also using technology and exploring areas where it can automate and upgrade its method of product delivery to grow retail without growing its shipping costs.

Future Of Grocery

Back in December, The Spoon covered Amazon’s move to create automated grocery stores using a combination of sensors, visual recognition and deep learning. The project, called Amazon Go, uses “Just Walk Out,” a system of technology that identifies shoppers via facial recognition, identifies products using sensors and RFID tags and ultimately learns what you buy and what you thought about buying so they can market to you later.

Amazon Go - Just Walk Out

Currently, Amazon offers consumers grocery items via its Amazon Pantry program, which lets customers fill a box of dry goods (food, cleaning, hygiene, etc) and ship everything for a flat $5.99. The appeal for Amazon Pantry shoppers is not just convenience but also price as Pantry goods are usually cheaper or on par with Wal-Mart and Target prices – taking direct aim at both traditional grocers and competitor retailers. But the program still drives hefty shipping expenditures – and only offers those “middle of the grocery store” items. Amazon Go could offer both fresh and dry goods using methods of automation technology that would greatly reduce overhead.

The Robots Are Coming

The other major area where Amazon is investing R&D is the use of robots, mainly drones, for delivery as opposed to the traditional UPS driver. Prime Air has been an Amazon initiative that takes airborne unmanned drones to drop packages at our doorsteps, using remote charging stations and coordinate technology to significantly reduce the cost of bringing those brown boxes to customers. The first package was delivered back in December to an Amazon customer in the UK and it looks like the company is still working on ways to make Prime Air a feasibility in the heavily regulated U.S. airspace.

Last week, the U.S. Patent Office awarded Amazon a patent for a method of air delivery that does not involve landing a drone in your front yard but rather using parachutes, magnets and sensors to hover above and drop the package from the air. The patent application explains that this method could be a safer and less intrusive way for drones to deliver customer packages. Despite the patent and other testing and work Amazon has done with Prime Air in the U.S., the method of using unmanned machines to navigate package delivery is still illegal.

Nevertheless, Amazon’s strategy to create different avenues of lower-cost delivery models when it comes to its retail business make sense, especially when you look at where they are currently profitable and where investors would like to see higher margins. The grocery store of the future and robotic delivery certainly seem futuristic and neither are mass market options for Amazon today. But it’s clear based on its financials and initiatives in the space that Amazon is looking for ways to make retail more profitable and efficient in the not too distant future.