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The Whole Story Behind Amazon's Whole Foods Buyout

This isn't about an online behemoth acquiring a struggling high-end grocery store. It's about altering our relationship with shopping in an entirely new way.

I'm not sure that in the past year or, honestly, in the past decade or two, there has been a single deal that will be regarded as a more impactful transaction across multiple industries and the entire omni-channel economy than Amazon's recently announced acquisition of Whole Foods.

I'm not sure that in the past year or, honestly, in the past decade or two, there has been a single deal that will be regarded as a more impactful transaction across multiple industries and the entire omni-channel economy than Amazon's recently announced acquisition of Whole Foods.

Apart from one of the Detroit Three auto guys or Daimler buying Tesla, it's unlikely that there will be another deal of this game-changing magnitude. So many of the other deals being discussed are "so what" stories at best and, as I always say, two warm cups of coffee don't make a hot drink. So I wouldn't waste a lot of time or breath on what's next. The question today for grocery chains and independent markets across the country and, frankly, all retailers is, what do we do now?

Believe me when I tell you that this isn't just a concern for the guys who sell cantaloupes and kumquats. In case it has escaped anyone's attention, Amazon is well on its way to becoming the nation's largest apparel merchant; and that's even before the rollout of its just-announced Prime Wardrobe business, which provides an at-home, try-it-before-you-buy-it clothing service. And because it's Amazon, the new offering comes with a special and very appealing little twist: The more of the ordered and inspected items you decide to actually buy, the cheaper the whole order will be for you. I like how this "bundle before you buy" incentive approach has you mentally accumulating and acquiring more and more things in your head before they even arrive on your doorstep.

I don't have any special sauce or secret solutions for the nation's merchants, but, if I were going to start trying to plan my increasingly bleak future, I'd want to be sure that I at least understood all of the dimensions of the deal and all of the different levers this acquisition affords Amazon. My sense of the general media coverage has been that it's a little long on hype and hysteria and fairly light on helpful information and analysis.

So, I thought it would be useful to try to briefly outline the three very distinct legs of the strategic stool and how each element enhances and extends Amazon's position in the marketplace.

Distribution/Access

Yes, the Whole Foods deal is an aggressive bump. More than 425 stores will remain, at least for a while, and these stores can serve as delivery depots and mini warehouses in Amazon's distribution channels as well. (Granted, Whole Foods' systems are almost certainly not up to Amazon's performance levels or expectations.) And not merely for groceries. The much more salient point is that Whole Foods gives Amazon ready access to affluent parts of the population. Whole Foods stores aren't uniformly spread across the country. They are highly concentrated in upscale areas and, as a result, provide access to an enormous number of exactly the kind of customers Amazon loves right along with their disposable income. Almost half the upmarket U.S. population are within a hop, a skip, and a jump of a Whole Foods market.

Replenishment/Cross-Selling

Shopping for our groceries, especially staples and commodity products, is basically a chore, and the less of it we have to do, the happier we'll all be. People don't need to go anywhere anymore to replenish the basics that they buy over and over again. We estimate that 70 percent of what you purchase each week at the grocery store is the same old stuff. So why wouldn't you have it automatically shipped (for free of course) by Amazon to your door? Amazon spoiled us with a single click solution a long time ago, and now we're moving toward no clicks at all. As the company's systems get smarter and smarter, we won't even have to press the Dash buttons any longer. Amazon will know when we're about to run out, and we won't have to run out any longer.

Even more compelling from a "getting to know us" standpoint is the fact that about 60 percent of the current Whole Foods customers are already Amazon Prime members. The cross-selling opportunities and the data-driven incentive plays are off the charts. Prime members are already princes and princesses online and in the Amazon stores (which is to say they pay less for just about everything), and it's only going to accelerate as they are increasingly identified and linked while they're in the Whole Foods markets. Special pricing, coupons and rebates on your phone, deliveries that beat you back to your home, etc. It's going to be a whole new level of omni-channel communication, and it's going to make shopping elsewhere a complete time-wasting drag.

Engagement/Trial

And it's not simply the productivity and efficiency savings that will make the new shopping experiences so special. Remember that it was the guys from Whole Foods who changed the entire supermarket experience for the better in the first place. They turned the mundane into the magnificent and made it fun once more to go to the store. Costco may have figured out how to get dads back into the stores (tech, tools, and TVs), but Whole Foods made it fun for the whole family. Hopefully, this is an area where the general Bezos bloodletting ethos won't overdo it. Save me money for sure, but don't turn the place into an Aldi, where you feel like you've gone colorblind because every generic package looks like the joy and the excitement were actually drained out before the products ever hit the shelves.

The good news is that the opportunities in the stores are so additive and important (from an experience, repeated trial, and data standpoint) to Amazon's ever-increasing accumulation of behavioral information and ultimate objective of knowing everything about us that I think Amazon will leave things alone for a while. Having 425-plus living labs to try a little bit of everything has to bring the purest joy to Bezos's little beating heart. And if he drives the crazy "Whole Paycheck" prices down to some realistic level over time, I'm sure none of us is going to be unhappy either.

To view the original article at Inc.com, click here.


About the Author

Howard A. Tullman, CEO, 1871

Howard Tullman has over 45 years of start-up, management, IPO and turn-around experience and an extensive operations background in web development, online services, large-scale information assembly and delivery systems, database design and implementation and the development, creation and production of all types and formats of multimedia, computer games and audio/video digital content. He has designed and developed GUI and natural user interfaces, interactive and immersive games and instruction systems and other electronic entertainments, training products and services, as well as other information-based products and services in a variety of fields including automotive, insurance, CRM, employment, real estate, consumer goods and social media.

Topics: Insights