The fresh food category scenario explains why Amazon buys WholeFoods. Digital and retail are complementary; the goal is to better profile consumers and meet their needs.
Amazon’s acquisition of WholeFoods anticipates the future of grocery on a planetary level. Fresh has had little impact on the digital market so far, due to thin margins. And above all, of the peculiarities of the products (perishable and of variable quality ‘by nature,’ as well as subject to the cold chain), which tend to be incompatible with the requirements of profitable large-scale distribution. But the scenario may soon change. At least in the US and UK markets, where WholeFoods is well established.
WholeFoods‘ approximately 450 out lets will enable the evolution of Amazon’s distribution model-which today relies on a small number of large logistics platforms-to the distribution of fresh foods sourced from small, local producers. The new synergy will enable large-scale application of Amazon technology and efficiency, bringing solutions such as AmazonGo to the general public.
Most importantly, Amazon will achieve last-mile control through physical contact with the consumer. This last aspect is strategic and should be of concern to any competitor in any industry.
The financial power of Amazon acquiring in a few months at $13.7 bln a U.S. leader in high-end fresh grocery (whose example has also influenced, among other things, distribution in Italy) is also indicative of new market strategies. The ability to generate credit and cash enables the masters of the global economy to make extraordinary investments in R&D and new business models (e.g., AmazonGo, Drones, Amazon FreshPickup). And in acquiring companies that are functional to the objectives, regardless of their sector and size.
The end customer and the preservation of Big Data are Jeff Bezos’ real focus. Food represents a primary, everyday need common to the multitude. Income connotes its consumption (store, discount store, supermarket, online). It offers the pulse of the situation, with direct and indirect information that can be easily disaggregated. Therefore, the ability to organize and collect information from grocery consumers is strategic.
The Italian fresh grocery market is still characterized by the presence of proximity stores where specialty, the relationship with small local suppliers and experience guarantee the high quality of the product. The quality is on average higher than that of large-scale retail. And yet it is inevitable to foresee a slow demise of specialist stores, due to payment tracking and the introduction of regulations and penalties that benefit large organizations.
The Italian GDO is accused of representing the end of small retailers, but in turn it must now watch its back against technological players with enormous resources. Who are no longer just presiding over the digital, but have entered the physical. Operations that used to take years are now completed in months. Esselunga or NaturaSì could be a theoretical target in Italy.
Because direct physical contact with the end customer ferries the past and present into the future of fresh grocery.
Technology will reduce management, organizational and logistical inefficiencies. And to profile consumers with surgical precision. But a tomato will be judged good by the final consumer if it is intact, satisfies the five senses and does not aggravate the budget. A result that can only be achieved through effective preservation of territory and customer.
Les jeux sont faits!
Fabio Ravera and Dario Dongo
Specialist in distribution models and Revenue Operations with over 25 years of projects in different industrial sectors and countries (12 years in the US). I work on Lean Organizations, Supply Chain Inefficiencies, Organizational and Financial Restructuring Projects, Digitization and GDPR
