Media is abuzz with Amazons recent bid for Wholefoods grocery chain.
Amazon agreed to acquire Whole Foods for $13.7 billion, a 27% premium over the stock price on Thursday at close, and now intends to push down prices and go after Wal-Mart Stores, Target, the German discounters Aldi and Lidl that are expanding in the US, Costco, and grocery store chains, such as Kroger and the private-equity owned chains Safeway and Albertson’s.
Amazon also expects to make a number of other changes, including to the merchandise the store carries, all in order to push down prices. Amazon would introduce private-label products – in addition to Whole Foods’ existing private-label products – to replace products that it considers too expensive. So get ready for Amazon’s food brands. Be prepared for difficult negotiations with manufacturers to reduce their prices to remain in Amazon stores.
After Whole Foods becomes part of the Amazon empire later this year, it no longer needs to make significant and growing profits. That quaint concept is out the window. Amazon is like so beyond that. It can lose money, no problem. On its own, Whole Foods could have never done that.
Also, it’s likely that Amazon will use its “Just Walk Out Technology,” now being tested at its Amazon Go convenience store in Seattle to replace cashiers and packers. When customers with the Amazon Go app on their smartphones walk into the store, the system logs them into the store’s network and establishes the connection to their Amazon account.
Amazon has made an art out of pricing, with prices jumping up and down dramatically, depending on who is looking at it, what kinds of cookies and browsing history they have on their devices, and what is known about them, for example when they’re checking a price while logged into Amazon.
This “variable pricing” model – which has spawned an entire sub-industry to defeat it – has spread to other retailers and can drive astute shoppers nuts. Of course, airlines and other industries also have used it for years. It would be interesting to see if Amazon can figure out how to move it to its brick-and-mortar stores – say, with prices only being posted on smartphones with the Amazon Go app when you get to the product.
So there could be a real shake up in how Brand’s need to engage with shoppers in this grave new world
Watch this space for my views on how this can be done