March 12th, 2019

Amazon, Whole Foods, and the Last Food Mile

It’s been over a year and a half since Amazon acquired Whole Foods in June of 2017. Unsurprisingly, the merger inspired tremendous speculation, eliciting both excitement and concern about the ripple effects of the union. While it may still be too early to draw conclusions, one thing is certain—a physical presence allows Amazon to move produce fast, and that’s both a problem and an opportunity.

Amazon, Whole Foods, and the Final Food Mile

Whole Foods provided Amazon with over 450 brick-and-mortar locations overnight. That reality came with opportunities and growing pains. Just a few months after the merger, Bloomberg reported a 25% shopper increase. As many expected, prices were down and business was up. However, as traffic increased, in the first six months, shoppers also complained of a decrease in produce quality. Citing quickly spoiling and tasteless produce, and frequent problems with staples running out of stock (most noticeable when turkeys were nowhere to be found a few days before Thanksgiving), many customers were concerned the shift had compromised the quality that drew them to Whole Foods in the first place.

While maintaining quality is a paramount concern, the massive potential upside of pairing their online physical presences has motivated Whole Foods and Amazon to work through the growing pains. As Rafael Romero, former VP at Continental Real Estate Companies told USA Today.  “[Amazon] fully recognize[s] that brick and mortar and online retailing is all retailing and you need both.”

eTail confirms the power of the online/offline fusion: “coming on the heels of the past decade’s surge of traditional retailers getting to grips with digital commerce – it seems that retailers now know that they cannot survive through either ecommerce or bricks-and-mortar alone. What’s needed is a combination of both.”

Amazon clearly believes in the power of a physical presence, as they just announced this month they plan to roll out dozens of additional grocery stores separate from Whole Foods locations.

Value Added-Products

While many wondered how Amazon’s focus on price and efficiency would blend with Whole Food’s commitment to organic and natural food sources, it appears that value-added products may provide the common ground.

During Barclay’s review of Whole Foods under its new ownership, the investment bank noted, “If WFM can move more volumes away from its service counters, it could save labor costs, which could help fund lower prices. We expect Amazon/Whole Foods to find more operational efficiencies and cost savings like this going forward.”

This confirms what Steve Lutz, Vice President of U.S. and Canada West for the Produce Marketing Association, told me when I asked him about the future of organic produce last month: “Take another look at packaging and value-added organic products,” Lutz said. “People think organic buyers don’t like packaging. That’s somewhat true. The hardcore minority organic buyers, the committed ones, they’re probably less enamored with packaging, but the growth is going to come from the people who are not users and those people like packaging. Organic and packaging for many of these consumers is actually a benefit; it’s an upside.”

For Amazon and Whole Foods, the potential to tap a new market, reduce spoilage and labor makes value-added organic products an upside worth exploiting.

The Last Food Mile
The “last mile” has long been a key issue in encouraging public transit. No matter how good buses and trains get, that final mile between the last stop and the front door may be enough to keep commuters in their cars. This is why electric scooters have been exploding throughout urban cores in North America and around the world, touted as a solution to the “final mile” problem.

In the world of groceries, the “last mile” of food’s journey from plough to pantry is the walk through the grocery aisle itself. In August, Whole Foods announced their grocery pick-up service, which would allow customers to pick-up groceries in as little as 30 minutes—eliminating the final mile entirely.

“Pickup from Whole Foods Market is a perfect option for customers who want to grab healthy and organic groceries at their convenience, all without leaving their car,” said Stephenie Landry, Worldwide Vice President of Prime Now, AmazonFresh and Amazon Restaurants. “A customer can order at 5:00 p.m., pick up at 5:30 p.m., and we’ll have their groceries loaded into their car just minutes after arrival. For an even faster experience, customers can tell us they are on their way using the Prime Now app and groceries will be ready as they arrive.”

As expected, Amazon is making produce rapidly accessible. The key moving forward will be continuing to partner with growers and suppliers who can provide the quality and taste customers expect as Amazon delivers with a speed we will soon take for granted.

 

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