I’m amazed at how little discussion there is of Amazon using WF as a beachhead to go after the grocery warehousing and distribution industry.
Retail is just one touchpoint for administering a tax on the industry. Warehousing and distribution is a far more centralized and efficient infrastructure play for a company like Amazon than trying to go after all the individually managed and differentiated retail stores.
Does Amazon understand how to do cold warehouse storage and shipping of perishable goods? Not yet. Can they? Certainly.
In 1992, I worked in a precast/prestressed concrete plant. One of the projects was a 500' fire wall for a Walmart distribution center near Brooksville, Florida. One side was dry goods, the other side was cold goods. There was 1000 linear feat of wall because it was double panel (as fire walls often are). That cold/perishable side was up and running 25 years ago. Before Walmart was even "in the grocery business". Of course before Amazon...Bezos hadn't even left Wall Street.
The hype about Amazon and Whole Foods ignores the real logistical challenge of the grocery business at scale. Catching up with Walmart means delivering fresh food everywhere 24 hours a day, not just "in select markets during business hours." I'd put it this way, Walmart's infrastructure can move upscale in the grocery market more easily than Amazon/WF's infrastructure can scale up for grocery sales. A significant amount of Amazon's existing inventory sits as stock in a warehouse. Amazon is not nearly as driven by just in time contracts with suppliers as Walmart.
>Walmart's infrastructure can move upscale in the grocery market more easily than Amazon/WF's infrastructure can scale up for grocery sales.
Can Walmart move their brand upscale? That may be more of a challenge than infrastructure.
As purchase trends continue to shift, Walmart needs to effectively service low-income customers in-store and middle- and high-income customers online (and perhaps occasionally in-store for pickups). Their core brand needs to represent different things to different customer segments. Not easy to do, but I'm glad they are trying.
Walmart carries organic produce, free range eggs, Dave's Power Seed, hormone free milk and whatnot. A shopper can put them in the same cart as their eighty cent Great Value Mac and Cheese and a box of Strawberry Pop Tarts. And Walmart will gladly take their money without judgment.
Walmart's business wasn't built on selling to low income people. It is built on selling to everyone in places like Fort Stockton, Texas. The person renting a dilapidated trailer and the rancher with 150,000 acres of cattle and oil leases both shop there because there aren't a lot of other practical options short of driving to El Paso. Not saying that there's not a significant difference in branding, but a lot of that difference is that Whole Foods brand images for people who are offended by Pop Tarts and HFCS on "their" store's shelves. On the other hand, Walmart's potential customer base is anyone who is not offended by shopping at Walmart for the vastest majority of grocery purchases.
I just finished the Sam Walton biography. I'm not sure of the author off hand (in case there was more than one) but you are spot on. Walmart started off in small towns where other stores couldn't justify a presence. It was a great day when a Walmart came to your town. The current evil mom-and-pop killing mega-corp is a more recent rhetoric.
> But the mid to higher end doesn't give away their money without judgment; that's the problem.
My platinum Amex works at Walmart just like everyone else's credit card, and with curbside pickup, I don't even have to go in. I can pull up, check in with the kids still in the car, and have the car loaded and be on my way in 5 minutes.
I don't shop Whole Foods because a) the value isn't there ("Whole Paycheck", and I don't have nor want Prime to get a discount) and b) Walmart is a slightly less evil sweatshop than Amazon (IMHO).
Sidenote: If anyone from Walmart Labs is reading this, you've really up'd your mobile (iOS) game. Kudos.
Think about paying more and not shopping at Walmart, if you want to stand on principle. Walmart is 'evil.' They don't pay their employees a living wage, so the tax payers have to pick up the difference.[0]
And, although he is long gone, Sam Walton was notorious for opposing the minimum wage. It's unclear to what extent that attitude persists.
A lot of people are judgemental about it though. The idea that everyone there has cooties is pretty deeply entrenched.
As far as Whole Foods goes, it has some specialty stuff you can't get elsewhere easily, but as a main grocery store the selection is small and the prices are high.
Even Amazon seems to be struggling with higher-end items now. I would never purchase a watch or anything else of value from Amazon anymore, but I'm pretty paranoid about counterfeit goods
What makes a TV harder to counterfeit than an SD card? Buy a cheap panel, slap it together with subquality work, apply the brand name, sell sell sell. Or even simply rebrand.
Amazon could combine efficiencies in distribution scale with a marketplace for producers.
Wallmart beats the suppliers down on price and quality, and only supplies their own stores. Amazon could supply many chain stores, profiting on the distribution/supply management, and also create a marketplace where suppliers sell to the chain stores, and profiting again on organizing the market.
If I'm not mistaken, many food companies have their own logistics. This is probably more efficient than adding Amazon. And I'm sure food companies won't be happy for Amazon to become part of their business unless it's necessary(I.e. Access to Amazon users).
Depends on the food company; and I'd say more of them outsource it than don't.
McDonald's, frequently considered to run one of the best supply chains in the world, outsources nearly all of their logistics to "white label" food distributors like those owned by Reyes Holdings [1][2], who then dispatch food in McDonalds's-branded trailers, but handle every aspect of distribution.
Before I worked in precast I did a lot of temp industrial work. One of those assignments back in the late 1980's was in a Martin Brower warehouse for all the McDonald's in Florida plus the one in Guantanamo. Thirty years ago, they were incredibly organized and efficient. A lot of that efficiency came from 19th century technology: a rail spur where boxcars of french fries and pickles pulled up. Since they're still in business, I imagine that time has made them Moore's Law more efficient.
One of the things that I noticed in the grocery section of Walmart is that they have a smaller quantity of items on the shelf that will expire more quickly, such as ground beef. My guess is they know the sell rate of those items in that store, and are able to better predict how many will be sold in the next few days, to minimize spoilage.
Not sure WF/Amazon has that skill, especially since Whole Food's margins have allowed for them to have a greater spoilage rate, while still having attractive displays of produce/meat.
>Does Amazon understand how to do cold warehouse storage and shipping of perishable goods?
Amazon prime now has been going on for years. I've had them deliver refrigerated eggs to me before. It worked great. But to your point they don't yet offer fresh produce. Hopefully soon.
It seems like they've been struggling with cold things a bit. I've been ordering the same gummy vitamins off of Amazon for years, but apparently they won't ship them to me until October due to the climate where I live (it's 65 degrees today which is actually less than than the average high temp in October)
>You're subscribed to a heat-sensitive product that we're unable to ship during the summer. Your subscription for the following item has been placed on hold and will automatically resume shipping in October:
I don't perceive that at all, when Amazon acquired WF there were shockwaves sent through the grocery industry. Tons of grocery stocks lost % off their stock price, lots of ink spilled on how they were going to compete and what Amazon was going to do.
It's just so far the only tangible difference we see is Amazon products for sale in WF, some prices are a little cheaper, and WF's bakery/prepared foods are a little worse. The grocery industry is definitely freaked out.
Why is this implied assumption that Amazon will win, where Walmart seems much better
positioned to win groceries ?
One possible scenario, for example: convenience is key. So people shift from cooking at home(only ~10% love to cook ) to buying fresh, restaurant quality, heat-and-eat meals.
Key parameters to compete here are quality, selection and price. Walmart could offer good quality via help of external chefs, if they get critical mass they could offer enough selection, and since they buy much more food than Amazon ingredients will come cheaper for them, supply chain will be cheaper for them, and and the only place Amazon may have an advantage is more efficient food making process, so there some chance Amazon could win where(altougj most like the innovation will come from a startup, which also Walmart can acquire) , but even so ,will it negate all of Walmart's advantages, and won't be copyable in some form ?
And remember, even for wealthy people that care less about price, better cost efficiencies could mean better food, better reviews or better paid marketing.
So What about other Amazon differentiators: Amazon Ecbo ? Google will offer that. Instead of just delivering stuff, putting them is people's fridges. Is that something that people do? Is that something so hard to copy ? And is that really a meaningful differentiation ?
Walmart's model is based around footprint, and separately, low prices -- and the two competitive advantages don't really overlap.
In US rural areas, they're often the only supermarket around, as "dollar"-style general stores don't sell fresh food, and local grocers have slightly higher prices, smaller stores, less product variety, and don't sell apparel and electronics. Walmart forms a single destination that draws customers from miles away, around which other services can coalesce.
Meanwhile, in urban and suburban areas, Walmart draws on demographics who are interested in low prices, while managing to avoid the quality and selection issues afflicting some low-end grocers. Shoppers with more disposable income usually opt for midrange or high-end grocers instead, to avoid some aspects of Walmart (e.g. large average basket sizes resulting in long waits for checkout, crowded parking lots, lack of focus on mood and presentation) because they can afford nicer stores.
Rural delivery is harder to execute, because population densities are lower. Therefore it's unlikely that rural America will be where Amazon's grocery ambitions make the most headway. But in urban areas, where Walmart's customer base is largely captive by income, Amazon stands to make more money by competing against mid-to-high-end chains first.
True, but Amazon Prime is a de facto warehouse club (cf. Costco) where you pay $100+/year for the privilege and perks to shop there. Once you're in the Prime ecosystem, your switching costs become higher.
Within Amazon's ecosystem, you can get a discount by using their credit card, a discount on shipping, a discount on pre-ordering items on a subscription, and all the personally-targeted aspects of a typical loyalty card. This is their moat vs. Walmart, and consequently, Walmart would have to offer a significantly cheaper (or "better") service to entice switchers -- a high bar for luring discretionary customers.
Will Prime affect grocery shopping behaviour ? Considering that Walmart' pickup will probably have a head start in many markets of creating that habit ?
Retail grocery sales != meal kits. In one instance, you simply procure the product and sell it on, and the other you procure, kit and sell via online. Huge difference.
> Key parameters to compete here are quality, selection and price. Walmart could offer good quality via help of external chefs, if they get critical mass they could offer enough selection,
Have you ever actually stepped into a Walmart? Walmart does not compete on any of those parameters, except for price.
> to buying fresh, restaurant quality, heat-and-eat meals.
Except this is not what is happening. Those companies have ridiculously high churn rates, which means the trend is fairly benign to certain sectors of the market (mainly large cities).
Most meal kits companies will die because they are inconvenient. Too expensive, too much messing around in the kitchen.
But heat-and-eat is easy(just putting something in the oven), somewhat close to takeout easy, and Walmart may take it to really interesting price points.
// Quality, selection at Walmart
Online ordering greatly increased selection. Will do for Walmart.
Walmart order food at the quality and price point fitting customers. Assuming grocery pickup/delivery will attract wealthy urbanists(see my other comment), Walmart will offer also higher quality products
i think one of the things you're missing is that whole foods locations tend to be in more upscale, urban locations. and people that live in upscale, urban locations can't stand walmart.
>The Seattle giant believes selling you groceries is the key to selling you everything else.
I mean...they're not wrong here. The grocery store is primarily for selling you groceries, but it's also the first place most people stop for cookware, trashbags, deodorant, etc because it's right there. I am a guy who tries to buy "quality" equipment for anything and everything, and usually I do meticulous research before buying anything online (read the Amazon reviews, cross reference with America's Test Kitchen and Serious Eats guides, etc). Nonetheless, I've bought my fair share of food containers or occasional kitchen tool from my grocery store because I had some cookie dough in my basket and I needed a cookie sheet right now or those cookies weren't going to happen.
They really choose to start somewhat from the bottom then, doesn't Whole Foods have something like ~3%-5% of the grocery market?
Compare that to companies with comparatively massive market shares like Kroger and Walmart. I can see an argument being made that groceries is a good way to go because people have to eat, but the topology of the industry doesn't really have a medium sized company that you could pour gasoline onto to gain a lot of market share. Something in a different industry might have been a better play to pilot before moving into other retail spaces.
They're at the top in brand reputation and at the bottom in market share. People who care a lot about food and are willing to spend on it accordingly shop at Whole Foods. There are relatively few of these people, hence their small market share. (A similar dynamic happens in most consumer industries: Apple famously has only 18% of the smartphone market but makes 87% of the profits, because they market to people who are willing to spend a lot on a cell phone.)
This is a pretty rational choice for Amazon, because Amazon's core competency is making things cheaper and more widely available but they have little experience in making things better - and indeed, their whole value proposition is largely in making things commoditized, helping you buy a "good enough" product more conveniently for less money. With Whole Foods, they're buying the brand and the expertise in quality, and then they can apply their existing strengths in logistics and supplier management to wrangle down the price and expand market share.
People that like to spend a lot of money for the same product shop at Whole Foods. Smart people, and price conscious people, buy the same product for a fraction of the price at their local franchise grocer, whether that is Hannafords, Market Basket, Price Chopper, Publix, or what have you, wherever you are.
Walmart does have typically inferior grocery items, still; it's been 15 or so years since the super centers were built in this area with groceries, but the meat and produce is still well below par.
Many grocery chains are regional. The national ones (Kroger, Albertsons) are so huge they were probably out of Amazon's price range. Walmart and Target aren't for sale.
If the article is right, all Amazon may need to kick things into profitability is enough economies of sale (built in customers) that their perishables can be fresh.
From there they can sustain a viable business, and they can increase its size as needed.
In other words, one theory is it's not so much about buying market share, it's about buying a roughly viable business they can piggyback on while they build market share of something new.
My wife is literally at Whole Foods right now, picking up an item she bought from their Treasure Box today. She will most likely walk inside since she's "already there" and pick up some stuff at Whole Foods.
I'm curious if Amazon will ever attempt something equivalent to a weekly neighborhood-wide prime grocery shipment receiving time.
Basically, every Tuesday at 10am-11am, my neighborhood will receive its weekly grocery shipments. If my other non-perishable prime packages happen to be in their holding warehouse by that time, I will get my non-perishable packages delivered to me at that time as well.
It would seem by bunching up the shipments it would save gas costs and last mile delivery costs.
Along those same lines, I'd totally stick a crappy IoT digital scale in my kitchen so that Walmart, Amazon, the NSA. etc can track my $regularly_purchased_item consumption habits so long as said crappy little digital scale orders me more of whatever that item is before I run out.
Yeah - I'm envisioning a refillable Amazon box for sugar, salts, cereal etc. that re-ordered themselves when low. Maybe using that Dash button technology.
Also a nice, paintable residential Amazon locker for home delivery to the front porch would be ideal.
I hear Amazon is working with Lennar these days but it seems to be all about Alexa.
If you put your feet up and brainstorm various possibilities like this, it's pretty exciting imagining what could be possible once certain technologies hit "good enough" levels, and(!) Amazon is granted permissions to really innovate in the infrastructure space in major population centers (say, leasing building rooftops for mini-warehouses, very light rail (<= 1m x 1m packages up to say 10 kg or whatever) connecting buildings to each other and to the ground to facilitate rapid delivery without being constrained by streets and carrying capacity of drones).
I hope I live long enough to see some of this happen.
>every Tuesday at 10am-11am, my neighborhood will receive its weekly grocery shipments
I view this as a constraint of the technology / infra and a temporary workaround.
In the same way that scheduled tv programming (structuring your day around prerecorded media) seems absurd, surely so will this ("back in my day, we had to wait until the groceries were ready for us!")
I feel Amazon would work around this constraint asks aim directly for on demand, regardless of increased difficulty. They aren't in the business of making the customer work for them. It would be a step bbw ok compared to car boot/trunk initiatives etc.
I disagree. The nice thing about WF is they have relatively fat margins, so that "margin space" gives Amazon a lot of room to operate. For example, they could provide cheaper delivery while still being profitable, just less profitable. Margins on traditional grocers like Kroger are so thin there is very little room to operate. With WF, Amazon could get a model that works and then work on making it more broadly applicable (like WF has already started doing with their cheaper WF 360 stores).
I see what you're saying but I still think a more accessible store with more economically diverse location (most WF were built where could afford to shop there) would've been a better move. It would've put Amazon in the heart of more communities. Remember Walmart started by catering to poor people and it turned out to be the right decision. I'm not so sure starting out catering to rich people is going to be the right decision in the long run.
IMHO it's easier to bring a high end retail down to the common folks than to take a low end retail to the rich folks.
That's how luxury goods..Couch, Michael Kors work...become a luxury good, then reduce price/quality for common folks. Common folks get luxury name and feel good.
You'll abandon the rich people but you'll make more money.
The problem is Amazon bought whole foods at the peak. The other retailers were already catching on that people will pay higher margins for some things and developing to serve that market. This brings out price competition, eroding margins...
Hard to call a peak while it's happening, don't you think? I think one thing WF has that is not as obvious is a nice atmosphere and interior design. It's just relaxing to walk through it compared to a Safeway or Fred Meyer or whatever. I don't see WF falling behind any time soon.
I will fully agree with your points. To me it looks like the peak, but we will only know in 20 years.
Note that business is complex and a good business pivots often, it may be that whole foods was bought at the peak of one, but they pivots to something else and remain successful. If Whole foods pivots to something else and remains successful that would prove nothing either way.
I poked my head in to see what the fuss was about when Amazon purchased them. $8 for a dozen eggs when other stores charge $3. Pure insanity. I laughed myself out of the store.
Make it a real argument, not a straw-man. WF has their most expensive pasture-raised eggs at under $8/dozen while also selling cheaper varieties at closer to $3/dozen or $4/dozen, and even their cheaper varieties are not from the truly grotesque worst-case factory farms that the cheapest eggs elsewhere come from. There might be something to debate here, but it's definitely not insane.
There do exist upscale over-priced places way more expensive than WF which are closer to your straw-man.
I can only speak to items I'm familiar with. Cafe Du monde for example sells for $9.99 at Whole Foods. It's $4.99 at your local Asian grocery store, $3.99 on sale.
Fred Meyer, Smiths, King Soopers, City Market -- all great stores. The other neat thing about them is that even backwoods towns now have self checkout (not every single location yet but close). I would have to say they are just about the best grocery store conglomerate out there.
Retail is just one touchpoint for administering a tax on the industry. Warehousing and distribution is a far more centralized and efficient infrastructure play for a company like Amazon than trying to go after all the individually managed and differentiated retail stores.
Does Amazon understand how to do cold warehouse storage and shipping of perishable goods? Not yet. Can they? Certainly.