Amazon's Whole Foods deal proves the 'retail mullet' is the future of grocery
By Eric Feinberg, chief marketing strategist, ForeSee
Amazon's multi-billion dollar acquisition of Whole Foods has already sent eruptions throughout the grocery industry, including a decline to stock prices for competitors. It's prompted a slew of commentary from the business media about how Amazon's plans will unfold and the broader industry impact. Surprisingly, not much has been said about the real logic behind the deal, which has far more to do with Amazon expanding into an area it knows it can win, and far less to do with battling rivals such as Walmart.
It comes down to two main factors: Amazon's commitment to customer experience and its plans to integrate physical and online shopping. As I previously wrote, Amazon is executing on a Retail Mullet strategy, meaning it will utilize the showroom in the front to entice customers while running a distribution hub in the back of stores. With the addition of Whole Foods, this Retail Mullet strategy will soon become a reality.
Below are three ways this concept will dictate what an Amazon-owned Whole Foods will look like and how it fits into a larger Amazon strategy.
New distribution centers across the country (business in the back)
It's been mentioned before, but the acquisition provides Amazon with 465 physical stores across the U.S. in prime real estate locations. These stores are in mostly high-end, well-trafficked areas – and pretty much all of them contain all the sorts of equipment you'd need if you were planning to roll out a huge home delivery service for groceries. These stores also contain mostly high-end customers congruent to Amazon's core Prime customer base.
Now, Amazon can't really kick off a Whole Foods-branded grocery delivery service right away. Prior to a sale, Whole Foods had a contract with delivery service Instacart that still has an estimated 4 years left on it that gives it exclusive rights for peer-based grocery shopping and delivery. The fact that this detail didn't deter Amazon at all should say a lot – clearly, they are willing to invest much more to make this work. But mainly, it points to the fact that Amazon doesn't need to wait on Whole Foods to take advantage of what the grocery chain offers – namely those physical store locations that can now become distribution hubs.
It's very likely that Amazon will operate two essentially separate but similar businesses out of these locations – as Amazon already has quite a bit of customer data informing its decisions from the handful of Amazon Fresh operations it's already set up (not to mention all the data on customer experience it's gained through its Amazon Prime membership service). But why stop there? Amazon will have now given Whole Foods the opportunity to explore an expansion of its overall business in ways previously thought to be too fringe or outside the scope of what the grocery chain has done before. (For example, some have started speculating initiatives like prescription delivery.)
Perfecting the in-store experience (showroom 'party' in the front)
We know Amazon is extremely committed to customer experience, so much so that it dictates nearly all major directions for the company since Day 1. Even more so than growing profits, Amazon is married to the notion that knowing your customers can unlock long-term business success. And so when the company revealed both its physical bookstore and convenience store retail concepts, both featured an in-store experience that attempted to mesh with the expectations of what current Amazon online shoppers would ideally want when visiting a store in person.
For the bookstore, it was keeping shelves stocked with only top rated items rather than cluttering it up with a greater selection. For the c-store concepts, Amazon hopes to eliminate the need to visit a cash register to complete your transaction. When it comes to Whole Foods stores, you can expect more of the same – tailored specifically to grocery store customers. And I’d bet a six pack of high-priced microbrew that Amazon Lockers subtly make their way inside the stores moving forward. As you are meandering through the fresh produce — picking the perfect organic acorn squash and selecting amazing organic avocados to be the bedrock for your rockin' guacamole — why not slink over one more aisle to pick up your non-grocery Amazon.com order. It would be safely in the locker instead of exposed on your doorstep. This increases frequency and attachment rates to increase the profitability of a struggling grocer — which is either a side benefit or a master stroke. Amazon knows the importance of this, and how it's far easier to adapt an in-store experience that people already prefer over massive grocery store rival Walmart.
A greater focus on customer experience data
The thing to remember about Amazon, again, is its commitment to understanding how to make its customers happy as well as how to maintain that satisfaction. While the independent Whole Foods would likely agree with this notion, it was only able to do so much in terms of dedicating its strategy to customer experience data. The grocer had been previously battling its board over weak sales growth and activist investors pushing for ways to boost the stock price. Neither of those two distractions are relevant now that Amazon is the parent company (or technically will be once it passes regulatory muster).
This deal, while executed by Bezos, is influenced and architected by someone else...America's increasingly discerning consumer. The only retail merger the modern American consumer cares about right now is the merging of online and offline shopping experiences. And they'll reward the companies that get there first. I'm inclined to believe Amazon is more than willing to allow Whole Foods to operate in a way that will provide long-term success in terms of market share growth, increased customer loyalty, and of course profits. This won't happen overnight, but with Amazon pushing its own retail mullet strategy in addition to Whole Foods running its own business, you can begin to see why this acquisition was worth nearly $14 billion.
Amazon is ready for the evolution of retail grocery
Amazon is able to bypass having to convert old business models to fit consumer's current shopping expectations. With Whole Foods it picked up a retail chain where customers already appreciate the inside of the stores far more than industry leader Walmart. (Seriously, does anyone really enjoy going inside a Walmart?) Getting into the grocery business is something Amazon has been plotting for years, and seizing the opportunity to acquire Whole Foods means its ready – both with near-term plans as well as having a great deal of long-term insights via customer data -- to compete at the highest levels.
Simply put, the changes coming to Whole Foods under Amazon will make the 'retail mullet' the new normal.
Topics: Consumer Behavior, Customer Experience, eCommerce, Marketing, Omnichannel / Multichannel, Online Retailing, Retail - General, Shopper Marketing, Supermarkets & Grocery Stores, Supply Chain, Top 100 Retail, Trends / Statistics