Amazon’s acquisition of Whole Foods marks a major turning point for retailers. This is not just a real estate play to acquire hundreds of sites in high demographic areas. In one stroke, Amazon has purchased a nationwide cold chain, deep freshsourcing expertise, a global sourcing network, and complete credibility in private-label food. Amazon Fresh is no longer something to keep an eye on. It is now every traditional grocer’s biggest strategic threat.
Grocers should look hard at their pricing strategies yet again
Whole Foods has worked hard on its value proposition and price competitiveness over recent years, it still retains some perception of the “Whole Paycheck” legacy of expensive merchandise. A survey of thousands of North American customers that we conducted before the acquisition was announced revealed that Whole Foods’ offering is considered one of the industry’s strongest, but it scored poorly compared to competitors when customers were asked if it delivered value – a weakness that the Amazon acquisition stands to improve.
This is a strategic move for Amazon, not an equity investment looking for a return on a stand-alone basis. Amazon’s interests are in expanding the appeal of the Whole Foods stores to more customer segments. Achieving that goal will require eliminating the price barrier.
CUSTOMER PERCEPTION MAP FOR MAJOR GROCERS
Before Amazon’s acquisition, customers considered Whole Foods’ offering one of the industry’s strongest. But also one of the priciest...
… At the other end of the spectrum, pure online grocers are considered convenient. But they score generally poorly in terms of the value and quality of their produce.
Source: Oliver Wyman analysis
Grocers' Biggest Threat
Partner Paul Beswick on what Amazon's purchase of Whole Foods means.
Paul Beswick is a Boston-based partner and global head of Oliver Wyman's Digital practice. Chris Baker is a Minneapolis-based partner in Oliver Wyman's Retail and Consumer Goods practice.