
How Amazon Plans To Use Whole Foods to Dominate the Retail Industry - juokaz
http://fortune.com/longform/amazon-groceries-fortune-500/
======
yodon
I’m amazed at how little discussion there is of Amazon using WF as a beachhead
to go after the grocery warehousing and distribution industry.

Retail is just one touchpoint for administering a tax on the industry.
Warehousing and distribution is a far more centralized and efficient
infrastructure play for a company like Amazon than trying to go after all the
individually managed and differentiated retail stores.

Does Amazon understand how to do cold warehouse storage and shipping of
perishable goods? Not yet. Can they? Certainly.

~~~
brudgers
In 1992, I worked in a precast/prestressed concrete plant. One of the projects
was a 500' fire wall for a Walmart distribution center near Brooksville,
Florida. One side was dry goods, the other side was cold goods. There was 1000
linear feat of wall because it was double panel (as fire walls often are).
That cold/perishable side was up and running 25 years ago. Before Walmart was
even "in the grocery business". Of course before Amazon...Bezos hadn't even
left Wall Street.

The hype about Amazon and Whole Foods ignores the real logistical challenge of
the grocery business at scale. Catching up with Walmart means delivering fresh
food everywhere 24 hours a day, not just "in select markets during business
hours." I'd put it this way, Walmart's infrastructure can move upscale in the
grocery market more easily than Amazon/WF's infrastructure can scale up for
grocery sales. A significant amount of Amazon's existing inventory sits as
stock in a warehouse. Amazon is not nearly as driven by just in time contracts
with suppliers as Walmart.

~~~
nugget
>Walmart's infrastructure can move upscale in the grocery market more easily
than Amazon/WF's infrastructure can scale up for grocery sales.

Can Walmart move their brand upscale? That may be more of a challenge than
infrastructure.

As purchase trends continue to shift, Walmart needs to effectively service
low-income customers in-store and middle- and high-income customers online
(and perhaps occasionally in-store for pickups). Their core brand needs to
represent different things to different customer segments. Not easy to do, but
I'm glad they are trying.

~~~
brudgers
Walmart carries organic produce, free range eggs, Dave's Power Seed, hormone
free milk and whatnot. A shopper can put them in the same cart as their eighty
cent Great Value Mac and Cheese and a box of Strawberry Pop Tarts. And Walmart
will gladly take their money without judgment.

Walmart's business wasn't built on selling to low income people. It is built
on selling to everyone in places like Fort Stockton, Texas. The person renting
a dilapidated trailer and the rancher with 150,000 acres of cattle and oil
leases both shop there because there aren't a lot of other practical options
short of driving to El Paso. Not saying that there's not a significant
difference in branding, but a lot of that difference is that Whole Foods brand
images for people who are offended by Pop Tarts and HFCS on "their" store's
shelves. On the other hand, Walmart's potential customer base is anyone who is
not offended by shopping at Walmart for the vastest majority of grocery
purchases.

~~~
pests
I just finished the Sam Walton biography. I'm not sure of the author off hand
(in case there was more than one) but you are spot on. Walmart started off in
small towns where other stores couldn't justify a presence. It was a great day
when a Walmart came to your town. The current evil mom-and-pop killing mega-
corp is a more recent rhetoric.

~~~
bobf
I read it as part of my business degree. It's a great book, and a fascinating
story: "Sam Walton: Made In America" by Sam Walton and John Huey.

------
petra
Why is this implied assumption that Amazon will win, where Walmart seems much
better positioned to win groceries ?

One possible scenario, for example: convenience is key. So people shift from
cooking at home(only ~10% love to cook ) to buying fresh, restaurant quality,
heat-and-eat meals.

Key parameters to compete here are quality, selection and price. Walmart could
offer good quality via help of external chefs, if they get critical mass they
could offer enough selection, and since they buy much more food than Amazon
ingredients will come cheaper for them, supply chain will be cheaper for them,
and and the only place Amazon may have an advantage is more efficient food
making process, so there some chance Amazon could win where(altougj most like
the innovation will come from a startup, which also Walmart can acquire) , but
even so ,will it negate all of Walmart's advantages, and won't be copyable in
some form ?

And remember, even for wealthy people that care less about price, better cost
efficiencies could mean better food, better reviews or better paid marketing.

So What about other Amazon differentiators: Amazon Ecbo ? Google will offer
that. Instead of just delivering stuff, putting them is people's fridges. Is
that something that people do? Is that something so hard to copy ? And is that
really a meaningful differentiation ?

~~~
mbesto
> positioned to win groceries

Retail grocery sales != meal kits. In one instance, you simply procure the
product and sell it on, and the other you procure, kit and sell via online.
Huge difference.

> Key parameters to compete here are quality, selection and price. Walmart
> could offer good quality via help of external chefs, if they get critical
> mass they could offer enough selection,

Have you ever actually stepped into a Walmart? Walmart does not compete on any
of those parameters, except for price.

> to buying fresh, restaurant quality, heat-and-eat meals.

Except this is not what is happening. Those companies have ridiculously high
churn rates, which means the trend is fairly benign to certain sectors of the
market (mainly large cities).

~~~
petra
// churn:

Most meal kits companies will die because they are inconvenient. Too
expensive, too much messing around in the kitchen.

But heat-and-eat is easy(just putting something in the oven), somewhat close
to takeout easy, and Walmart may take it to really interesting price points.

// Quality, selection at Walmart

Online ordering greatly increased selection. Will do for Walmart.

Walmart order food at the quality and price point fitting customers. Assuming
grocery pickup/delivery will attract wealthy urbanists(see my other comment),
Walmart will offer also higher quality products

------
AdmiralAsshat
> _The Seattle giant believes selling you groceries is the key to selling you
> everything else._

I mean...they're not wrong here. The grocery store is primarily for selling
you groceries, but it's also the first place most people stop for cookware,
trashbags, deodorant, etc because it's right there. I am a guy who tries to
buy "quality" equipment for anything and everything, and usually I do
meticulous research before buying anything online (read the Amazon reviews,
cross reference with America's Test Kitchen and Serious Eats guides, etc).
Nonetheless, I've bought my fair share of food containers or occasional
kitchen tool from my grocery store because I had some cookie dough in my
basket and I needed a cookie sheet _right now_ or those cookies weren't going
to happen.

------
chuckgreenman
They really choose to start somewhat from the bottom then, doesn't Whole Foods
have something like ~3%-5% of the grocery market?

Compare that to companies with comparatively massive market shares like Kroger
and Walmart. I can see an argument being made that groceries is a good way to
go because people have to eat, but the topology of the industry doesn't really
have a medium sized company that you could pour gasoline onto to gain a lot of
market share. Something in a different industry might have been a better play
to pilot before moving into other retail spaces.

~~~
nostrademons
They're at the top in brand reputation and at the bottom in market share.
People who care a lot about food and are willing to spend on it accordingly
shop at Whole Foods. There are relatively few of these people, hence their
small market share. (A similar dynamic happens in most consumer industries:
Apple famously has only 18% of the smartphone market but makes 87% of the
profits, because they market to people who are willing to spend a lot on a
cell phone.)

This is a pretty rational choice for Amazon, because Amazon's core competency
is making things cheaper and more widely available but they have little
experience in making things better - and indeed, their whole value proposition
is largely in making things commoditized, helping you buy a "good enough"
product more conveniently for less money. With Whole Foods, they're buying the
brand and the expertise in quality, and then they can apply their existing
strengths in logistics and supplier management to wrangle down the price and
expand market share.

~~~
megaman22
People that like to spend a lot of money for the same product shop at Whole
Foods. Smart people, and price conscious people, buy the same product for a
fraction of the price at their local franchise grocer, whether that is
Hannafords, Market Basket, Price Chopper, Publix, or what have you, wherever
you are.

Walmart does have typically inferior grocery items, still; it's been 15 or so
years since the super centers were built in this area with groceries, but the
meat and produce is still well below par.

------
jedberg
My wife is literally at Whole Foods right now, picking up an item she bought
from their Treasure Box today. She will most likely walk inside since she's
"already there" and pick up some stuff at Whole Foods.

------
jpao79
I'm curious if Amazon will ever attempt something equivalent to a weekly
neighborhood-wide prime grocery shipment receiving time.

Basically, every Tuesday at 10am-11am, my neighborhood will receive its weekly
grocery shipments. If my other non-perishable prime packages happen to be in
their holding warehouse by that time, I will get my non-perishable packages
delivered to me at that time as well.

It would seem by bunching up the shipments it would save gas costs and last
mile delivery costs.

~~~
dsfyu404ed
Along those same lines, I'd totally stick a crappy IoT digital scale in my
kitchen so that Walmart, Amazon, the NSA. etc can track my
$regularly_purchased_item consumption habits so long as said crappy little
digital scale orders me more of whatever that item is before I run out.

~~~
jpao79
Yeah - I'm envisioning a refillable Amazon box for sugar, salts, cereal etc.
that re-ordered themselves when low. Maybe using that Dash button technology.

Also a nice, paintable residential Amazon locker for home delivery to the
front porch would be ideal.

I hear Amazon is working with Lennar these days but it seems to be all about
Alexa.

------
alistproducer2
They should've bought Kroger if that was their intent. WF is too expensive for
like 80% of the U.S population.

~~~
hn_throwaway_99
I disagree. The nice thing about WF is they have relatively fat margins, so
that "margin space" gives Amazon a lot of room to operate. For example, they
could provide cheaper delivery while still being profitable, just less
profitable. Margins on traditional grocers like Kroger are so thin there is
very little room to operate. With WF, Amazon could get a model that works and
_then_ work on making it more broadly applicable (like WF has already started
doing with their cheaper WF 360 stores).

~~~
alistproducer2
I see what you're saying but I still think a more accessible store with more
economically diverse location (most WF were built where could afford to shop
there) would've been a better move. It would've put Amazon in the heart of
more communities. Remember Walmart started by catering to poor people and it
turned out to be the right decision. I'm not so sure starting out catering to
rich people is going to be the right decision in the long run.

~~~
bredren
It worked for iPhone.

~~~
alistproducer2
you mean, carrier subsidization worked for the iphone.

~~~
bredren
No, I don’t. The iphone was $600 with subsidy. Other phones were free or less
than $100 w subsidy.

------
C_System
Where does Instacart fit into this equation?

------
fiveFeet
A bit off topic but I wish the Costco membership had something like "Amazon
Prime Video" for watching movies.

