Following reports from the Wall Street Journal on the “ Amazonification of Whole Foods,” amidst brand-new pilots in which ShopBots (yes, that’s a genuine term) bring Pepsi and 3,800-square-foot Amazon Grocery kiosks offer Doritos, Whole Foods Market’s CEO Jason Buechel remarkably doubled down on the credibility of these concepts, by means of a post on LinkedIn
In the post, Buechel shared a video of the ShopBot test at a shop in Pennsylvania and stated, “Whole Foods Market has actually constantly taken pride in using a broad choice of natural and natural items, however we comprehend clients value the benefit of one-stop shopping. Recently our group presented a brand-new “shop within a shop” idea at the Plymouth Satisfying, PA place … We have actually developed a brand-new 10,000-square-foot automated micro-fulfillment center in the shop’s back-of-house location at our Pennsylvania place, offering clients the chance to include products they can’t discover in-store– all in one stop.”
One watch of the above video, and no doubt most readers will concur– Buechel’s vision sure as heck isn’t your grandparents’ Whole Foods any longer. Digital screens showcasing Kraft Mac & & Cheese in the pasta aisle? Green and white mini-robots wandering around in what appears like a tidy space?
WTF?
The test is so unusual that a person needs to ask: why would Buechel openly support it? Due to the fact that in the viewpoint of this specialist, this concept is dead on arrival.
The Strategic Disconnect
Sure, the appeal of the concept exists, i.e. why should a Whole Foods buyer need to make more than one journey to do his/her grocery shopping? For instance, I can nearly envision among the vaunted internal Amazon press launches behind this concept– “Opening Quickly: An Entire Foods with all the very same terrific products … plus all the sweet name brand name extravagances you long for!”
However, here comes the rub.
If the mass market in fact desired natural kale and Pepsi in the very same shopping journey, do not you believe the merchant purchasers at Walmart, Target, and Kroger would have currently figured that out? These are a few of the most intelligent operators in retail, and they have actually had years to commit more rack area to natural and natural items.
They have not, and the basic factor for that is the mass market hasn’t asked for it. If it were asking for it, you can wager your bottom dollar all 3 of them would have currently done it.
When I was running frozen food at Target, we invested numerous hours evaluating classification efficiency, comprehending client shopping patterns, and drawing up variety methods. The information informs you quite rapidly what clients desire and what they do not desire. And what Amazon appears to be missing out on here is that Whole Foods clients picked Whole Foods specifically since it wasn’t the typical mass market supermarket.
On the other hand, counter to this pattern, Sprouts Farmers Market opened 30 shops in 2023. Entire Foods opened 8. Sprouts is performing on a clear method of being a distinguished healthy foods merchant, and they’re growing since of it. Entire Foods, on the other hand, is explore robot-fetched Pepsi.
At finest, it is either an indication of an Austin-based ayahuasca-induced id or, at worst, it is an indication that Amazon is entirely at a loss in regards to how to break the grocery market, which causes my next point.
The Sunk Expense Trap
This next declaration might be tough to think, however there is in fact something more uncomfortable in the Journal’s reporting than robotics providing sugar-flavored water. Mentioning market-research company Numerator, it specified that Amazon’s market share in grocery still has actually stagnated above 4% considering that the acquisition of Whole Foods. For contrast, Walmart’s market share is approximated at roughly 25%.
Additionally, according to the Journal once again, Whole Foods states that its sales have actually grown by more than 40% considering that Amazon took control of the chain, however that only total up to 5% development each year typically, which is paltry, thinking about inflation (a huge element on food sales efficiency) over the very same time period averages out to about 3.6% each year Or stated another method, a 1400 bps spread out in between inflation and development is absolutely nothing to compose home about, and particularly when the getting business is among the most powerful e-commerce business worldwide.
Yet, what’s the reaction amidst this background?
Rather of doubling down on what has actually made Whole Foods unique, Amazon is basically attempting to turn it into Amazon Fresh 2.0. Amazon is cleaning out cafe and seating locations to set up corner store kiosks. It’s concealing robotics in the backroom to bring Tide Pods. All while business workers stress over brand-new ideas, like “Amazonification,” and return-to-office requireds.
Discuss a timeless case of attempting to fit a square peg into a round gluten-free bagel.
What Made Whole Foods Belongings
Buechel and Amazon are forgetting that Whole Foods has brand name equity that it took control of 45 years to construct. Clients understand that when they stroll into a Whole Foods, they do not need to inspect every component label. They do not need to question if the items satisfy specific quality requirements. This trust becomes part of the brand name’s whole worth proposal.
If you begin including Pepsi and Doritos and Kraft Mac & & Cheese to the mix, you’re putting the problem back on the client. Unexpectedly clients are standing in the aisle asking themselves, “Wait, do I desire this better-for-me variation or the routine supermarket variation?” That cognitive load matters, and, without that comfort, it might wear down among the extremely things that made Whole Foods unique in the very first location.
And, as an outcome, therein likewise lies the primary tactical problem with this method.
The Amazonification Fork In The Roadway
Play it out.
Let’s state for the sake of the argument that this test succeeds. Does Amazon then struck the gas pedal on refashioning its Whole Foods shops throughout the nation to offer Oreos together with hemp seed?
Let’s state it does. Then what?
Initially, Whole Foods ends up being less “Whole Foods” and begins to assemble to the mean of the typical experience of every other supermarket out there. Sprouts gets the abandoned share, and Amazon continues to combat an uphill struggle in grocery since the distinction points, i.e. what made Whole Foods unique, are gone.
2nd, grocery is a regional video game, which is the reason that Whole Foods has actually existed for as long as it has as the recipient of a 2nd organized grocery journey. If Amazon begins to play the main journey video game, they will not just need to displace the incumbents (something which numerous chains have actually attempted to do and stopped working, consisting of Amazon– see Amazon Fresh 1.0), however Amazon will likewise need to do it from a location of significant tactical drawback in regards to shop count.
Whole Foods just runs simply over 500 shops throughout the U.S. Walmart has more than 4,600. Kroger has more than 2,700. Aldi has more than 2,500. And, let’s not forget Dollar General, which itself is attempting to get more into grocery, and its 20,000 plus shops, too.
Disallowing an acquisition, it might take years (plural) for Amazon to match the scale needed to complete efficiently, not to mention with what eventually might seem like absolutely nothing more than a me-too grocery experience.
What If There’s No Reversing?
I asked Amazon ff the robotics shows effective, how does it imagine distinguishing itself from the remainder of the grocery market in the long-run, and particularly if it simply starts bring the very same products as everybody else?
To its credit, Amazon’s reaction was extremely clear. On no specific terms, they stated that products that do not satisfy Whole Foods Market Quality Standards are not readily available on the racks at Whole Foods Market, which, in addition, the function of the automation test is merely to enable clients to continue to buy their preferred natural and natural items from Whole Foods Market and to get a wider item variety from Amazon all in one journey or online order, conserving them money and time.
Do not get me incorrect. If Amazon wishes to lean into the “ milk with your electronic devices” idea that Andrew Jassy discussed previously this year by utilizing robotic satisfaction within Whole Foods areas for wider Amazon shipments, I can support that method. Offered where Whole Foods shops lie, typically in wealthy city and suburbs, that might truly produce worth for the total Amazon environment.
Nevertheless, that’s a totally various method than attempting to get Whole Foods buyers to purchase Spicy Sugary food Chili Doritos in the lobby, or by means of digital rack ads in-store. It is a method that works when you are speaking about online basket structure however discovers a little like attempting to have your cake and consume it too within the in-store environment.
Additionally, once the genie runs out the bottle, it can get actually tough to put her back in.
The Grocery Organization Is Likewise About As Difficult As It Gets
All of which brings me to the bottom line of this post– you can’t require your method into the grocery organization.
Whole Foods had something unique. It had clients who wanted to pay premium rates since they relied on the brand name. It had a culture that brought in enthusiastic workers who thought in the objective, and it had a clear point of distinction in a congested market.
Now, regretfully, Amazon seems on the cusp of methodically dismantling it.
Due to the fact that all roadways here cause the very same location: Whole Foods looking less like clients understand it today and more like simply another supermarket without any genuine points of competitive distinction. When that occurs, exactly what then did Amazon pay $13.7 billion for?
Simply over 1% yearly development and the long-shot alternative of displacing regional incumbents, which history has revealed to be the hardest gamble in retail that there is?
The genuine response and the greatest worry, if Amazon continues to pursue this course, is that a person day we might all recall and understand that Amazon when paid a premium for Whole Foods’ brand name equity and after that consequently provided all of us a case research study in how to damage it.
Source: Forbes.
