Open Mike
What does Amazon’s purchase of Whole Foods mean to the industry? Although Whole Foods has only 13 stores in Canada, the ultimate effect of the acquisition on the grocery retail landscape in this country could be far-reaching. Online grocery sales in Canada have lagged behind other retail segments. Most consumers surveyed are not interested in online grocery shopping, preferring to buy their fresh foods at bricks-and-mortar stores. Amazon has set the bar when it comes to online shopping, and yet, e-grocery continues to pose a challenge for the company. I think the purchase of Whole Foods is a testament to the importance of bricks-and-mortar stores, and how the two channels can co-exist to grow both segments of the market.
How will this acquisition disrupt the grocery channel? • Amazon became a national grocery chain overnight. It is now the fifth-largest grocery chain in the U.S., with 460 stores.
In summary, Amazon’s purchase of Whole Foods will have a tremendous impact on the grocery channel in the years ahead. Past mergers and acquisitions have demonstrated the ripple effect that a transaction of this scope and magnitude can have on the retail landscape. This is not good news for traditional retailers. Today’s CEOs already have plenty on their plates to worry about; this deal just adds to the stack. After the last round of industry consolidation, we have seen several years of solid growth and profitability. This could be the calm before the storm.
Major challenges today and on the horizon: • Price deflation • Margin compression • Carbon taxes, and cap and trade • Minimum-wage changes • Discount growth and expansion – will Aldi or Lidl launch in Canada?
• Whole Foods will gain more deal dollars from manufacturers, and can take advantage of Amazon’s tremendous buying power.
• Eroding tonnage in conventional store formats
• Amazon now has broader consumer reach, with great retail locations in major urban centres.
• Slow-growth economy
• Amazon gains an efficient distribution system and network for a better understanding of fresh-food handling, logistics, refrigeration, quality assurance, trucks and storage. • Amazon benefits from tremendous goodwill with Whole Foods’ reputation for fresh, organics and natural foods – a must for online grocery success. • A cheap acquisition for Amazon, at US$13.7 billion. It didn’t hurt the balance sheet, and Whole Foods is profitable.
• Growth of online grocery shopping – is it a profitable alternative?
• Ethnic store growth biting into traditional store formats Every action causes a reaction. The Amazon/Whole Foods deal will act as a catalyst for more changes in the industry. Today’s traditional grocers can’t be complacent; change will happen faster than most will anticipate. Hold on to your hats – it’s going to be one heck of a ride!
• Could cause a margin compression in organics and natural foods for its competitors. • Could spark interest for other grocers to expand their online capabilities. • Whole Foods could become more of a competitive threat, and impact the bottom line of current grocers by repositioning to a lower price point. • Sets the stage for future acquisitions.
grocerybusiness.ca
Michael Marinangeli is a principal at MIDEB Consulting Inc. and a retailing veteran with more than 40 years of experience. Contact: mjmarinangeli@gmail.com Michael is a founding member of the Grocery Business Advisory Board.
September | October 2017
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