Amazon Acquiring Whole Foods: A Wakeup Call for the Grocery Industry?

There’s certainly been a lot of buzz and discussions since Amazon announced its planed acquisition of Whole Foods. What impact is this going to have on the grocery industry? Is Amazon going to shape and transform the way we shop for groceries and have them delivered? What should other grocers do in response?

“I think you’re kidding yourself if you don’t see this as a wakeup call for the grocery industry,” said David Caines, COO at Kenco Group in a recent episode of Talking Logistics. “The [traditional] retail model is broken in so many ways…It seems like every time you open up the Wall Street Journal, there’s news of another retailer filing for bankruptcy or closing stores…The grocery business itself has always been a brutal, tight-margin business. If you look at Kroger, there was a statistic of how many quarters in a row they had same-store sales improve and now that trend has reversed on them. What’s true for retail is true for grocery, and I see this acquisition as being a big wakeup call for the industry and it’s going to be exciting to see what Amazon does.”

Another threat to traditional grocers in the U.S. is the expansion of German grocers of Aldi and Lidl. As reported by the Wall Street Journal this past May:

Wal-Mart Stores Inc. executives are bracing for the arrival in the U.S. of a European grocer with a track record of disruption.

Lidl, a German discount chain whose entrance in the U.K. in 1994 helped upend that country’s grocery sector, says it will open 20 stores in Virginia, North Carolina and South Carolina by summer, with some arriving in the next few weeks. Two hundred or more are planned in the coming years, according to real-estate analysts.

Ratcheting up the pressure: Another German discounter, Aldi, which entered the U.S. market in 1976, is fortifying its American business. It plans to spend $1.6 billion to remodel and expand 1,300 U.S. stores and build 650 more by the end of next year.

“It’s so interesting to see all of these bankruptcies and store closures, and yet [retailers like Aldi and Lidl] with a different model, a different supply chain, a different approach are able to find a measure of success,” added Caines.

Will the Amazon-Whole Foods deal change the way we shop for groceries and have it delivered?

Online grocery shopping and home delivery is not new; companies like Peapod and Instacart, which last year signed a 5-year partnership with Whole Foods, have been providing it for years. But it’s still a relatively small percentage of overall grocery spending, at least here in the United States. Will this deal lead to more online ordering and home delivery of groceries? Watch the short clip below where Caines shares his perspective:

“[The Instacart model] is very expensive,” said Caines. “You literally have one shopper for one consumer, going through the store, driving to a house and delivering it. And so to make that financial model work, it ends up being very expensive for the consumer.”

Which is why, Caines added, “all of the consumer packaged goods (CPG) executives that I’ve talked to really believe that a big part of e-commerce over the next several years is still going to be order online, pick up at store.”

I encourage you to watch the rest of my conversation with David for additional insights and advice on this topic, including the ripple effect of this deal (and what’s happening across retail and CPG in general) on the logistics service provider industry.

Do you agree that Amazon acquiring Whole Foods is a wakeup call for the grocery industry? Post a comment and share your perspective!

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