Why has Amazon Acquired Whole Foods Market?
On 16th June, Amazon announced that they would be purchasing the high-end, organic global grocery store Whole Foods Market for the tune of $13.7 billion (£10.7 billion). The deal meant buying the company for $42 per share. It is being seen by many as a game-changer for the food industry – both online and off – largely due to the fact Amazon is considered the fourth largest business in the United States.
At the heart of this change is a question many are asking regarding the acquisition – why has Amazon chosen to make this move? Is it because they want to branch out into high-street shops? Are they looking to develop their online food retail sector? Or do they want the data that Whole Foods Market could provide them with?
Speculation is rife. For many people, the acquisition is being seen as a way for Amazon to sell a wide array of groceries online at lower prices, thanks to their ability to scale efficiently. However, Ben Thompson – who writes for the blog Stratechery – believes the company will be using their new access to fruit, vegetables and meats (key grocery items) as a means of launching Amazon Grocery Services, in which farmers and small manufacturers can sell, store and shop their products easily to an array of new customers. Not only could the service be used by home cooks, it could also be leveraged by professional kitchens too.
At Newsweek, the prediction is that Amazon has purchased Whole Foods Market due to the data it holds. As they note, “Amazon is the retailer of the AI era”. Everything it does is about finding ways to capture data, to then target customers more specifically and uniquely to increase sales.
Of the 300 million people using Amazon, approximately 20% are buying from them at least once a week. Their highly personalised tactics are working, and the data they’re gathering is continually growing too. Newsweek believes Amazon’s plans for the grocery store will no doubt include AI learning strategies, in which Whole Foods Market helps Amazon to learn more about their customer sector and its opinions on food items. Additionally, through their own algorithms, they will be able to make the Whole Foods Market stores even better for customers.
TIME Magazine has put forward many other suggestions for the purchase, including the fact that Amazon will be able to develop their physical retail footprint. Whole Foods Market would give them around 465 bricks-and-mortar stores in which they could create their vision for the future of supermarkets.
They could also use the stores and its infrastructure to help with their Amazon Prime service, enabling much faster delivery times. Additionally, it would help them to add more products to their Amazon Fresh service, which came into operation in the UK in 2016.
There is also the possibility that Amazon purchased Whole Foods Market because it allows them access to a huge wealth of engaged customers, who they can then draw online to the Amazon platform. It also gives them an entry into the supermarket world with an already established brand, saving them the hassle of having to start from scratch with setting up their own label.
It is likely that many reasons all came together to influence the acquisition, but the high price Amazon was willing to pay for the grocer – their largest ever deal – suggests there’s a lot of potential to this buying decision that they’ll soon be putting into practice!
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