The Morning After: Supermarket Retail Wakes Up to the Mother of All Hangovers

The Morning After: Supermarket Retail Wakes Up to the Mother of All Hangovers

Gary Hawkins, CART


Like the proverbial morning after hangover, supermarket retail wakes up today with a pounding headache as the implications of the Whole Foods acquisition by Amazon settle in. 

The astounding loss in market value as share prices dropped on the news of the acquisition has retail executives nauseated as they contemplate their changed future. One article this past Friday called out that the top 20 traditional retailers collectively lost nearly $40 billion in market value. This, while Amazon actually gained an estimated 3% in value, approximately the cost of the Whole Foods acquisition. That’s adding insult to injury for traditional retailers. 

Certainly the most obvious threat is that the acquisition of Whole Foods by Amazon will greatly accelerate the industry’s move online. And the knee-jerk reaction of brick & mortar retailers will be to accelerate their plans to put online shopping capabilities in place as fast as they can to protect top line revenue. This is the type of tactical reaction that supermarket retailers excel at. See threat. React to threat. Next.

The problem for traditional retailers is that Amazon’s move into physical retail carries with it much broader strategic implications than just growing online shopping. Amazon’s acquisition portends a vast transformation of the industry that will play out over the next several years. As I called out on the day of the announcement, Amazon is positioned to leverage its vast technological capabilities to meld the digital and physical worlds and innovate the future of retail at massive scale… and speed. Traditional retailers simply do not have a clue what’s coming at them.

Consider that Amazon can now tie Whole Foods to its Alexa virtual assistant platform and the Dash replenishment services. Not only can the vast array of Whole Foods products be available via a simple Dash button ‘click’ but Amazon will let shoppers simply ask Alexa ‘what’s for dinner tonight from Whole Foods’ and then deliver it. Amazon’s Dash replenishment service, integrated into smart appliances for the automated replenishment of things like laundry detergent, will extend to the refrigerator and pantry. Amazon will be glad to relieve you of the burden of creating a list and going shopping or even placing an order online; your pantry and fridge will just be automatically replenished for you.

Amazon will bring its supply chain prowess and efficient distribution operations to Whole Foods, lowering costs across the board. Amazon has already claimed a 20% reduction in operating costs at its distribution centers through the use of robotics; those same or similar robots will quickly find their way into Whole Foods distribution centers, and eventually even into the stores.

And lest we forget, it is not just retailers that are threatened. Major CPG brands are also being put on notice. Amazon can leverage its scale to lower product costs at the same time it repackages Whole Foods private label products to make them easier to ship and deliver, taking WF private label products online through the Amazon platform and quickly growing sales volume, further lowering costs. All this at a time consumers are searching for healthier alternatives to major CPG brand products. No wonder the markets drove down the share price of manufacturers like Kellogg and General Mills after the announcement.

The reduction in product costs will be used to change the perception of ‘Whole Paycheck’, Amazon growing physical store sales through more competitive pricing. Compounding the impact, it is expected that Amazon will leverage its tech know-how to lower store operating costs, such as using the self-shopping technologies being used in the Amazon Go store to eliminate the need for cashiers. 

And while it grows physical store sales, Amazon will build further synergy between the online and physical worlds by letting shoppers pick up merchandise ordered online from the local Whole Foods store.

Few have talked about Amazon entering into the payments world but the acquisition also tees up that opportunity as it is not much of a stretch to enable Whole Foods customers to pay via their Amazon Prime account at checkout. Shares of traditional payments related companies like First Data, Verifone, and Blackhawk Network Holdings took hits as analysts ponder the impact of Amazon on how customers pay in brick & mortar retail. First National Bank of Amazon anyone?

It’s going to take more than a couple aspirin to make this hangover go away.

About the Author

As Founder and CEO of CART, Gary Hawkins has an unparalleled view to current and future innovationin fast moving consumer goods retail. 

CART is Advancing Retail by connecting the industry to innovation. Retailers, wholesalers and brands utilize CART to find, research and connect with solutions appropriate for their businesses. Solution providers use CART as a go-to-market tool that connects them directly to their target retail audience, all the way into the brick and mortar store itself. CART has unparalleled insight into what’s next in retail and shares this information regularly through multiple channels. 

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Retail Verticals:  Drug & Pharmacy, Supermarket

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