I recently wrote a blog about a month ago that spoke to the rumors swirling around Amazon possibly purchasing BJ’s. Amazon was quick to distance themselves from the noise, and today’s announcement is a the perfect indicator as to why. Amazon today announced it is acquiring supermarket giant Whole Foods for $13.7 billion. This is a move that will send shock-waves across the food and grocery industry and will be examined and discussed thoroughly in the weeks to come.
I stand by my original statements when the possibility of the BJ’s acquisition was brought. I think this is a brilliant move for Amazon into a brick and mortar strategy. A recognizable and valuable brand like Whole Foods enables Amazon continues to position itself as a true innovator and leader in this space.
Read below to see why I had positioned this as a strategic move for Amazon to acquire a brick and mortar network:
Amazon is looking to optimize its supply chain.
It’s been made clear through these speculations that Amazon is looking to extend its supply chain and ultimately create a comfortable way for consumers to shop in warehouses close to them. In the past two years, Amazon has prioritized fast and convenient delivery. Investing in planes, shipping services, drones and trucks – Amazon has spent $3 billion in transportation shipping alone. The endgame is clear: ‘uberize’ last mile service. There really is no better way to streamline this process than by occupying more warehouses and improving the supply chain. It’s also a smart move because warehouses appeal to customers that live in close proximity. They get the same level of quality they expect from Amazon, while simultaneously reducing the cost of delivery and working with a “local” company.
Amazon is moving further into a customer-centric model.
Let’s face it – each customer is unique and has different wants and needs when it comes to what they buy and how they buy it. Consider two different groups of products that are most commonly purchased on Amazon – they can both be found in seconds and significantly contribute to the online retailer’s success.
The first set of products can be defined as ‘mainstream.’ This means items that are being bought every day and are not difficult to find – TVs, laptops, desk supplies, seltzer water or even holiday decorations. Consumers shop for these products on Amazon because they can be delivered quickly, efficiently and at competitive prices. These are Amazon’s reliably movable products, with consistent sales on a daily or weekly basis.
The second group is the ‘long-tail products.’ These could be anything from a rare book, a particular part for a car that isn’t sold at your average automotive store or a certain size shoe that isn’t commonly carried. Amazon recognizes that, by having such a wide assortment of products available in one place (in this case, online), consumers will continuously look to them for their needs because of this “one-stop-shopping” model. In fact, this model has been successful to the point of beating out Google as the first point of search for most products.
Opening up warehouses that consumers could physically shop in would add another dynamic of tailoring shopping experiences for consumer benefit. For example, if a newly re-branded Amazon warehouse is located just a mile away, a consumer would be able to pick up the exact product they need and Amazon would ensure that it’s waiting for them upon arrival. This comes with the added benefit of being able to conduct regular shopping of mainstream items while in-store, killing two birds with one stone. This is the next logical step in the quest to optimize convenience for consumers, reducing the 24-48 lead time from purchase to delivery to 10 minutes. Thinking long term, this is how Amazon will create the ideal customer-focused retail experience of the future, where shoppers will have their goods waiting for them, and they can be instantly directed to anything else without having to ask an associate or wander the aisles.
Despite having backed away from rumors of purchasing BJs, the fact the rumor mill was churning is telling in itself. Amazon is hoping to combine the Brick & Mortar and online models into one convenient location that sells just about everything, while optimizing its supply chain cost down to the last five miles. It is a pretty powerful concept, and one that showcases how Amazon is thinking ahead and disrupting traditional commerce every day. With bringing back the desire to shop in-store, Amazon also generates an opportunity to analyze consumer behaviors in a more granular fashion. When a product is returned for example, Amazon will not only understand why, they also now have the chance to provide the customer the opportunity to replace that purchase with something they may like better – potentially increasing sales converting real traffic in-store rather than only relying on online conversion. Considering that online conversion rates are at 0.08 percent and increase to eight percent in-store, there is significant opportunity for Amazon here.
The following blog article was written by Profitect CEO Guy Yehiav, June 16, 2017, in direct response to the announcement of Amazon’s purchase of Whole Foods.