From online book store to e-commerce giant to cloud giant, there really doesn’t seem to be anything that Amazon doesn’t do well. With complete dominance over the cloud sector, a lot of people might be wondering what it’s doing taking over a grocery store chain. What it’s doing is what it already does, except taking it to another level. Though AWS has become Amazon’s “bread and butter,” it hasn’t forgotten its roots as a disruptor of the retail industry. The Amazon-Whole Foods deal, which was finally approved by Amazon shareholders and U.S. regulators in late August, has their competition in the grocery business worried, to say the least.
For years now, the only aspect of retail that Amazon has probably not been able to affect is the human tendency to avoid buying groceries online. That’s why the Amazon-Whole Foods acquisition is such a big deal since it could change that aspect for Amazon in a big way. We may buy clothes, perfumes, or even cars online, but things we’re going to eat we like to see, feel, and touch. Even when people order food online, it’s normally only one meal because they’re in a hurry. When people buy their groceries for the month, they like to make a list, check it twice, and take their time.
Whole and soul
In 1978, Mackey and Renee Lawson borrowed $45,000 from family and friends to open a small food store called SaferWay in Austin, Texas. Both were later evicted from their apartment for storing food products at home and were subsequently living in the store and showering with the dishwasher. Little did they know two years later they would be at 10,500 square feet with a staff of 19, and they definitely didn’t know they would one day be selling for $13.5 billion to an Internet giant.
There are a lot of people (mostly customers of Whole Foods) who are not happy with the Amazon-Whole Foods deal, especially since Whole Foods is about healthy nutritious organic foods that don’t have additives or chemicals. A lot of people believe that Amazon is just going to use the shelf space to push all its own products and worry that their favorite healthy foods won’t be available any more.
Getting in on the action
The Amazon-Whole Foods combination takes Amazon’s physical presence to a new level. The grocery chain includes more than 460 stores in the United States, Canada, and Britain with sales of $16 billion in the last fiscal year. Mikey Vu, a partner at the consultancy Bain & Co. who is focused on retail, said, “They’re going to be within an hour or 30 minutes of as many people as possible.”
As far as enterprise IT is concerned, considering their dominant position in the cloud, Whole Foods just looks like fodder for their machine. The acquisition brings to light, however, the sheer magnitude of the grocery business in the United States, which is estimated at about $800 billion a year.
Whole Foods to wholesale foods
What drew a lot of people to Whole Foods was that their buying strategy made it possible for small producers to get products into regional stores. The company says between 10 percent and 20 percent of the products in each of its stores come from local producers. Apparently, this was also against the advice of investors, who felt like buying in such small amounts adversely affected profits.
Many experts believe Amazon would use its vast distribution system to help streamline Whole Foods’ operations, which understandingly enough makes some food company owners hopeful about their future with Amazon. There are others, however, who feel Amazon is all about the prices and buying large quantities of items and sticking them in warehouses till they’re required. How many people want their groceries coming from the shelf of a warehouse?
Becoming a habit
As far as exposure goes, this acquisition is brilliant for Amazon. Giants like Google, Facebook, Apple, and Samsung are always looking for permanent spots in our lives. Google has about half of us with Android and almost all of us with Gmail, Maps, and their other applications. Everyone talks about vendor lock-in in the enterprise, but lots of us are locked-in in our personal lives, and if Amazon breaks through with groceries, they’re going to “lock-in” a lot of people.
If there’s a chance for Amazon to make itself a daily habit by becoming a bigger player in food and beverages, so be it. It’s also been close to 10 years that Amazon’s been trying to get people to buy their groceries online, but as mentioned before, people like to feel their food before they buy it. With the Amazon-Whole Foods combination, Amazon moves its e-commerce business up quite a few notches since they’re effectively going to tap into a lot more people’s daily expenditures.
That, plus their dominating online presence, has got competitors like Wal-Mart seriously worried. “Make no mistake, Wal-Mart under no circumstances can lose the grocery wars to Amazon,” said Brittain Ladd, a strategy and supply chain consultant who formerly worked with Amazon on its grocery business. “If Wal-Mart loses the grocery battle to Amazon, they have no chance of ever dethroning Amazon as the largest e-commerce player in the world.”
Amazon-Whole Foods: Only numbers
At the end of the day for Amazon, it’s always going to be about numbers, taking an old-fashioned business, digitizing it, and converting that into fodder for its machine. The e-commerce and grocery business is huge, and with shelves just an hour away from most people plus the technology of the cloud, artificial intelligence, and the IoT, we might just have robots from AWS doing our shopping for us soon. While buying your bread and breakfast from a global corporation on a daily basis obviously isn’t going to sit well with some people, there doesn’t seem to be anyone who’s going to stop the machine that’s called Amazon from converting everything it sees into digital money.
The Grocery Wars
There’s a saying about how only when the planet is finally destroyed will we realize we can’t eat money. It used to be made of paper, now it’s just some numbers on our phone. Grocery shopping going digital is probably just a sign of things to come in a future where our lives may be defined by lines of code. With regards to the grocery wars, Wal-Mart has a big market and quite a lot of money, but it’s like a fight between a grocery store and the death star. With the amount of technology and innovation that goes into AWS on daily basis just to keep getting better and better at what they do, it’s like the happy-go-lucky Brazilian football team meets Ze Germans.
AWS, on the other hand, is the one playing the defending game as far as the cloud is concerned, and that gap between it and Azure is surely but steadily growing smaller. With a lot more players entering the market and the future of the IT industry at stake, it’s interesting to wonder which battle Amazon feels is more important: the Grocery Wars, as it is being called, or the Cloud Wars.
Photo credit: Flickr / Mike Mozart