It’s a million-dollar—or more accurately, a 13 billion-dollar—question: Why did Amazon buy Whole Foods? Even casual observers note that there have been relatively few changes to either shopping channel thus far. Whole Foods stocks some Alexa devices, and Amazon hosts the Whole Foods store brands. But were those collaborations really worth the $13 billion Amazon paid to acquire Whole Foods?
Of course not. Instead, Amazon invested in Whole Foods mainly to learn more about the grocery business, and how it might be transformed successfully as a viable online sales model. Thus far, consumers have remained resistant to adopting online grocery shopping, but Amazon, in its efforts to continue growing, needs to convince them to start buying their household supplies, cereal, milk, produce, and meat through its site.
The first couple of categories appear viable. People are happy to have detergent or dry goods shipped to their door. But the latter product categories create a different challenge. Human shoppers hesitate to allow someone else to pick out their perishable goods, for fear they will wind up with bruised fruit, not-very-fresh fish, or poor quality steaks. Because they are willing to devote the effort to visit a store to guarantee their preferred quality for these items, it is easy for them to pick up some paper towels at the same time, which means the convenience benefits of the online channel no longer hold the same appeal.
In seeking to overcome this hurdle, Amazon has devoted substantial time, money,
and resources to analyzing more and more data. At the same time, data analytics companies are developing new technologies to inform the challenge. For example, new video software would allow consumers to take a peek at which produce is being packed for them, such that they could select the most appealing looking apple from a remote location.
The company that develops and applies the technology that ultimately convinces consumers to do most of their grocery shopping online will enjoy a massive first-mover advantage. From this perspective, Amazon’s determination to understand shopping behaviors better, through its access to Whole Foods and its consumers, makes better sense. It hopes to become the first place people look for their groceries, along with virtually everything else.
Such an outcome also implies that Amazon eventually will need to decide what to do with the physical inventory of Whole Foods stores. That is, if grocery shopping transforms into an online process for the majority of the population, the industry is likely to undergo substantial shifts, similar to those that have affected booksellers. There will likely be fewer large supermarkets or hypermarkets; instead, consumers likely will want smaller, easily accessible stores for fill-in trips between their primary orders for groceries, placed online.
In addition, the online channels will need to support more diverse product offerings, such that consumers can get the specialty and ethnic foods they desire, wherever they live. Another key element that the online channel can provide, to the benefit of consumers, will be services that increase the convenience of the chore of grocery shopping and that support their meal planning. A recent study showed that many consumers started planning for their holiday feasts by visiting a grocer’s website; such service offerings may make the difference in encouraging more people to embrace an entire consumer journey through an online channel.

Discussion Question:

1. Why did Amazon buy Whole Foods?
2. What significant changes has Amazon made to the Whole Foods shopping experience?
3. What changes need to occur to make online shopping a viable alternative for most consumers?

Source: Richard Kestenbaum, Forbes, December 16, 2018