The Growing Goliath: Amazon’s acquisition of Whole Foods

Last week, Amazon announced that they were going to acquire Whole Foods for $13.7 billion. Amazon is currently the largest retailer online, but their purchase of Whole Foods will allow the company to grow in the grocery delivery business after years of many failed attempts to succeed in the grocery industry.

Amazon first entered the grocery delivery business back in 2007 when they started testing their Amazon Fresh service to specific neighborhoods in Washington. Amazon Fresh provided consumers with items that they would typically find at their neighborhood grocery stores, which included fresh products, personal care products, or non-perishable items. Through Amazon Fresh, consumers were able to purchase items online and then have the items delivered by selecting a one-hour delivery window. This allowed customers to get same-day delivery on every day essentials that catered to their busy schedules.

However, Amazon Fresh was not as successful as the company hoped it would be. Often times, Amazon Fresh employees had to throw away fresh produce as they would rot or items would be returned due to poor quality. Additionally, Amazon Fresh employees weren’t well trained.

Amazon has been trying to break into the grocery industry and hasn’t been successful despite many attempts. Currently, Walmart is the largest seller of groceries in the country; so, the company hopes that they will be able to break in to the grocery industry with their acquisition of Whole Foods to become the “one-stop” shop that fits anyone’s needs to beat competitors like Walmart.

Since 2012, Whole Foods has been suffering and investors have been suggesting to sell the company to a larger grocery chain. Since Whole Foods is known for their high prices, Amazon is planning to lower the prices to target Walmart’s customers. Currently, Whole Foods has their 365 stores, which offer lower prices than typical Whole Foods stores. Yet, Amazon is able to build something bigger than Whole Foods 365 because they have the necessary resources and financial capital.

Since the grocery business earns over $600 billion each year, it explains Amazon’s continued push to enter this industry. The company understands that they are not able to rely on online purchasing like they are used to with Amazon Fresh or other non-perishable Amazon products, so the company plans to use current Whole Foods locations as physical stores to offer both online and physical stores for customers. Amazon has already opened physical locations for other products like bookstores, so they see the value and need in opening up physical grocery stores with their acquisition of Whole Foods.

References:

Bose, N. & Dastin, J. (2017, June 18). With Whole Foods, Amazon on collision course with Wal-Mart. Retrieved from https://www.reuters.com/article/us-whole-foods-m-a-amazon-com-walmart-idUSKBN1990HH

Harris, C. & Cook, J. (2007, August 1). Amazon starts grocery delivery service. Retrieved from http://www.seattlepi.com/business/article/Amazon-starts-grocery-delivery-service-1245445.php

Kestenbaum, R. (2017, June 16). Why Amazon is buying Whole Foods. Retrieved from https://www.forbes.com/sites/richardkestenbaum/2017/06/16/why-amazon-is-buying-whole-foods/#6004e1bf40f6

Meyer, Z. (2017, June 18). Get ready. Amazon-Whole Foods deal will change how you buy food forever. Retrieved from https://www.usatoday.com/story/money/business/2017/06/18/get-ready-amazon-whole-foods-deal-change-how-you-buy-food-forever/102914448/

Soper, S. (2017, March 20). Inside Amazon’s battle to break into the $800 billion grocery market. Retrieved from https://www.bloomberg.com/news/features/2017-03-20/inside-amazon-s-battle-to-break-into-the-800-billion-grocery-market