Amazon Whole Foods Acquisition - Analysis of the Corporate Strategy

Analysis of the Corporate Strategy- Amazon Whole Foods Acquisition

Amazon’s $13.7B purchase of Whole Foods, a grocery chain with more than 450 retail stores and extensive domain expertise, has elicited a range of reactions from various retail players and their investors. Amazon’s stock price rose on this news while that of grocery retailers such as Kroger’s, Ahold Delhaize (parent company of Food Lion and Giant supermarkets), Sprouts Farmers Market, Supervalu, and Costco all declined. An estimated $22 billions of share value just disappeared from grocery-related stocks in one day based on the knowledge of how a combined Amazon–Whole Foods go-to-market play might disrupt traditional grocery performance measures and the performance measures of other retailers as well.

TCS for Amazon-Whole Foods acquisition

1. Resources

Amazon storefronts are the new normal for many grocery retailers. Entering the grocery category presented Amazon with a large opportunity to buy into a physical store presence; the reverse of Walmart’s acquisition of Jet.com for its e-commerce expertise. In acquiring Whole Foods, Amazon captures a highly prized urban footprint located in one of mass market retailers’ remaining areas of growth. Not only has Amazon gained storefronts, it has added 11 food storage centers to its expanding network of 450-plus distribution centers to support expansion of its services.

1. Businesses

Amazon is anticipated to grow its share of wallet from its Prime and Whole Foods customer bases. At its core, Amazon is a customer-centric company, constantly evolving and testing all aspects of its operations in pursuit of fulfilling its customers’ desires. Knowing how to organize and operate around how its customers wish to interact and essentially innovating from the outside-in has been a key component in Amazon’s success. This acquisition is no different. They are now able to provide a missing category of product to customers, thus increasing an already large annual spend. Adding fuel to this contest, there is an existing strategic overlap between Amazon Prime and Whole Foods consumer demographics. With an overlapping customer base, Amazon will likely expand into a new category from a position of strength. For competitors, retaining or attempting to capture new market share from these customers may prove challenging.

1. Competitive Advantage

Operational competitiveness is only likely to ramp up. Gaining access to Whole Foods’ network of food suppliers and distributors is expected by many to increase Amazon’s influence in vendor negotiations by pushing competitors’ profit margins down. Amazon’s power to negotiate ever-lower prices with suppliers means food deflation pressures are likely primed to negatively impact profit margins for competitors while still benefiting consumers. Keeping prices low will likely only strengthen loyalty by Prime members. When it comes to competing on operational performance, such as consumers’ preferences for “buy online, pick up in store” (BOPIS), “buy online, return in store” (BORIS), and other mass fulfillment initiatives, Amazon’s delivery platform already surpasses many retailers.

1. Coordination

Acquiring grocery may not be the end. To continue its growth trajectory, Amazon is likely to enter categories that up to this point have been relatively immune to its influence. Amazon has been beta testing services in the areas like Home improvement services, and in B2B and DIY food kits. Amazon recently filed a trademark for meal kits: “We do the prep. You be the chef.” Amazon is now delivering same-day meal kits by Martha & Marley Spoon, a partnership with Martha Stewart. The kits can be ordered with an Amazon Fresh membership and do not require individual subscriptions. Other supermarket chains selling meal kits are Giant Eagle, Coburn’s to the Table fresh meal kits, which has begun selling Purple Carrot meal kits. Even highly regulated markets such as liquor or chemicals could be considered potential targets for Amazon’s merger and acquisition aspirations.

1. Organization

Retailers may leverage Amazon for advantage. CNBC estimates that Amazon accounted for 53 percent of US e-commerce growth in 2016. Leveraging Amazon’s marketplace platform as a 3P vendor in addition to its nascent physical store presence may prove quite lucrative for retailers desiring to provide consumers with an easily accessible Omni-channel experience day or night. The power of Amazon’s extensive consumer purchase history, combined with shopper analytics and advertising revenue, is apt to be an equally compelling reason for retailers to contemplate a partnership that would likely extend their reach and share of consumer wallet.

1. Control

The goal could be to create a virtual, transaction-based dream team of superheroes that can be dedicated to surviving and thriving where no retailer has gone before. With technological investments, acquisitions, and operational improvements, Amazon is considering calculating the benefits of joining or forming an ecosystem of complementary partners with expertise in delivery, social media, digital payments, e-commerce, and distribution platforms. Table1 depicts the value chain of Amazon Inc.