Amazon's $13.7 billion acquisition of Whole Foods Market signals a major boost to grocery ecommerce, and it could do more to change grocery retailing than any development of the past several decades.
While much attention is focused on how this major acquisition will further boost ecommerce, the merger also points to the growing importance of physical stores in the rapidly unfolding ecommerce paradigm.
It is yet another sign — the biggest to date — that retailing is being redefined by multiple shopping channels. Amazon and others have recognized that technology has enabled an "endless aisle" that integrates warehoused goods that consumers can access online and at stores and pickup kiosks.
The Whole Foods acquisition — Amazon's largest to date — provides further evidence that retailing's future lies in the integration of physical stores with online shopping. The digitization of retail information has given new relevance to physical stores in this evolving equation.
Millennials are driving the need to integrate physical stores with online shopping, which partly explains Amazon choosing Whole Foods.
Millennials, the most Internet savvy consumers, consider physical stores more important than do Gen Xers and baby boomers — a finding that raised eyebrows during a panel at the recent Interactive Customer Experience Summit in Dallas. Millennials are doing their research online, but for certain items, they want to touch the merchandise before they buy.
When millennials were asked during the summit session to name their favorite shopping venue — online site or physical store — three of the seven said "specialty stores," Kroger and Target, while the others named Amazon, Google, eBay and Talkville.
Whole Foods has focused on millennials with its emphasis on wellness, its environmentally friendly packaging and its commitment to fair business practices.
The company has even harnessed self-serve kiosks in merchandising specialty food ingredients in pursuit of millennial shoppers. A kiosk provided by Baldor Specialty Foods, a fresh produce distributor in the Northeast and Mid Atlantic, makes the selection of unique culinary items available to home cooks. Shoppers place their orders at the Baldor Forager and return for in-store pick-up in a day or two. The digital interface encourages exploration, discovery and a retail experience focused on customization.
Amazon seeks leverage
If Amazon can win the millennial grocery shopper, it stands to gain more leverage in winning consumer sales for other goods. Becoming a destination for grocery purchases will boost shopper visits to its online portal, netting add-on sales.
The recent acquisition marks the latest step in a journey that began 10 years ago when it introduced its Amazon Fresh home delivery service.
The company has since invested in grocery pickup kiosks in Seattle and has also introduced a convenience store concept, Amazon Go, where shoppers scan themselves into the store using an app, place items from shelves into a shopping bag and get billed automatically.
It won't happen overnight
Taking on the struggling grocery sector, with its razor thin margins and logistical complexities, promises to be the retail technology behemoth's biggest test to date.
Consumers have been slower to buy groceries online than hard goods due to issues such as freshness, product damage and fear of losing their personal connection to food. Retailers, for their part, have been hampered in developing grocery ecommerce because of the challenges of temperature controlled delivery, lack of volume and low profit margins.
In its quest to further expand its online footprint, Amazon has recognized the need to target millennials and to integrate physical stores with ecommerce.
Ecommerce is changing the role of physical stores, but it is not replacing them.