Today’s news of Amazon’s plans to buy Whole Foods will certainly be a game changer for the grocery industry. Though the news came as a bit of a surprise, it appears to make sense for both companies.  While both organizations have strong brand recognition, Whole Foods has been struggling of late. The acquisition can help boost Whole Foods’ sales and alleviate some of the pressure from investors, while helping Amazon succeed in expanding in the grocery space, an initiative it has been working on for some time.

While it’s unclear what the operations will look like, Mintel expects the physical stores to offer a blend of the traditional Whole Foods experience while embracing some innovations from Amazon. Amazon sees the value of physical stores – and Mintel research on the US grocery category supports this notion. While more than one third of grocery shoppers have ordered groceries online, the majority are still shopping at brick and mortar stores for their grocery needs. A hesitation to choose certain items (namely produce, fresh meat, dairy) remains among many grocery shoppers.

Benefit for Whole Foods

Whole Foods already has the physical real estate which Amazon seeks, but has struggled to find its way in e-commerce, focusing innovation in-store instead (eg offering casual places for shoppers to work or socialize, wine bars, and a host of other services). Therefore, this partnership is sure to bring more interesting and unique concepts to market that will enhance consumers’ shopping process even more. For example, Amazon Go, which tracks purchases via the Amazon Go app, allowing shoppers to avoid the checkout process, may be incorporated into existing Whole Foods stores. This could add convenience to busy, on-the-go Whole Foods shoppers, while expanding the Amazon Go concept without having to add new real estate. Another potential concept might be the ability to order items from Whole Foods directly through Amazon’s Echo, Alexa or Dash.

95% of online shoppers have shopped at Amazon.com.

In addition, Whole Foods may benefit from an expanded reach of online shoppers by leveraging Amazon’s dominance in the online space, particularly through its vast network of Prime members. According to Mintel’s US online shopping research, nearly 70% of consumers participate – or are interested in – Amazon Prime and 95% of online shoppers have shopped at Amazon.com, compared to just 38% who shopped grocery retailers online in the same period.

Amazon’s success with Prime may also help Whole Foods alleviate some of its negative price perception. Often dubbed “Whole Paycheck,” many consumers perceive the prices to be higher due to the amount of natural and organic foods and premium products offered. Conversely, Amazon is favored for low prices and fast delivery, and depending on new initiatives, this sentiment may extend to shoppers who previously avoided Whole Foods, should the partnership help Whole Foods offer more competitive pricing on products. Its 365 store concept, a low price alternative, will likely play a key role in the portfolio for this reason. Amazon is also aware of the desire among consumers for more natural and organic products at affordable prices. Per Mintel’s forthcoming US Organic and Natural Shopper report, 13% of consumers report having purchased organic foods or beverages from an online resource, having the products either shipped or picking them up at the store. This number, however, skews significantly higher when considering generational demographics: 21% of Millennials report having ordered groceries online for either shipping or pickup in-store, compared with 9% of Generation X and 5% of Baby Boomers and older generations.

Perhaps the Amazon stamp of approval is the push some on-the-fence consumers need to become confident in purchasing groceries online.

Further, the comfort level and satisfaction many shoppers have with shopping on Amazon may encourage those who previously shied away from shopping online for groceries to engage in a trial. Nearly three in 10 grocery shoppers have not bought groceries online in the past 12 months, but would like to in the future. Perhaps the Amazon stamp of approval is the push some on-the-fence consumers need to become confident in purchasing groceries online.

The ripple effect

The ripple effect of this announcement is far and wide-reaching. A natural question is what happens to Instacart? Whole Foods currently has a multi-year partnership with the grocery delivery service. Given that Amazon already has existing infrastructure with its Amazon Fresh concept, one scenario is that the company lets the deal transpire when it expires and Amazon uses its own resources as a replacement. Amazon should, however, evaluate its existing infrastructure as well as Instacart’s to identify economies of scale. There are likely synergies that, if combined, could yield a larger presence overall in delivery. Still, the acquisition gives the combined company a stronghold in all three main shopping methods: buy online and pick-up at the store; buy online and have items delivered; or shop in-store. Loyal Amazon and Whole Foods grocery shoppers will now have the luxury of choosing.

This move may also spur action from other retailers as they consider how to compete. Walmart has already been prioritizing a build-out of its grocery division which includes significant expansion of its buy online, pick up in store option. Jet.com’s role may have just gotten a whole lot more important as its unique model provides value to consumers in a way that could undercut Amazon prices. The unification of Whole Foods and Amazon could foreseeably bring other (smaller-scale) consolidation in the industry too, such as traditional supermarkets merging to broaden scale, or acquiring meal subscription-based prepared meal services.

What we think

While the future remains to be seen, leaving us to only speculate about implications, today at least, all attention in grocery is on Amazon and Whole Foods. This one (very big) transaction could very well change the face of online grocery. Mintel will continue to monitor this transaction and the changes it brings as it evolves.

Diana Smith is an Associate Director, Retail & Apparel at Mintel. She brings a unique background and perspective having previously spent her career growing up in advertising agencies, specializing in media planning and strategy.

Alison Lipson is the Director of Retail & Apparel, Technology and Automotive Reports at Mintel. Prior to her role as Category Director, Ali spent three years as a Senior Analyst at Mintel specializing in Retail and Apparel. Ali is an expert at identifying and analyzing retail and consumer trends and providing actionable insights to clients. Prior to joining Mintel, Ali worked in many different capacities within consumer goods and retail, including retail consulting, consumer behavior and shopper marketing, and market research.

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