Last week Amazon announced it is buying American grocery chain Whole Foods Market, a transaction worth USD13.7 billion. Pundits have described it as the biggest transaction ever for the online retailing giant. Arguably, it is also the company’s biggest statement of intent: it is putting a stake on the very industry it has revolutionized when it was founded back in 1994.
First, most obvious, question: what’s in it for them?
Many have posited that it is Whole Foods’ distribution network Amazon is after. The grocery chain has 410 stores in the United States, plus thirteen in Canada and nine in the United Kingdom. The online retailer has been operating an online grocery service, AmazonFresh, since 2007, although its coverage has been limited to major American cities, as well as London, Berlin and Tokyo, through partnerships with local stores. Acquiring its own grocery chain boosts that service’s capability to serve its customers: more distribution points, a wider transport footprint, and more importantly, a guaranteed source of products it can sell to its customers.
The acquisition could also give AmazonFresh a leg up in the increasingly crowded online grocery industry, a space where start-ups jostle with traditional retailers, and a space where more consumers are flocking—particularly younger folk who are strapped for time and demand guarantees about the quality and provenance of their purchases. One can now replenish their pantries with a few taps on a screen—and they can do it as often as they need, rather than have to do it weekly and thus need to plan ahead. (We younger folk can be impulsive, or so marketing gurus say.) Plus, the retailer will deliver orders to the customer’s door; conveniences aside, it ensures the product remains in the best possible condition as it makes its way from store to kitchen.
Some have also suggested that Amazon’s acquisition is as much about who Whole Foods caters to as it is about its network. Since being founded in 1980, Whole Foods has claimed a reputation for exclusively selling food items that have no artificial preservatives and flavors; across the years they have expanded, catering not just to health-conscious consumers but also to those who, again, care about what the food they eat contains and where it comes from.
That may seem like a niche concern, but in some American cities this offering is competitive. I remember a conversation I had with a friend who lives in New York City—and by that, I mean Manhattan, not one of the surrounding suburbs. She shops at Whole Foods not just because big box retailers like Walmart are far from her. “Everywhere in NYC is overpriced,” she told me, “so I might as well get organic if I’m going to pay that much.”
So, in a nutshell, Amazon is expanding its presence in the physical space—just last year they opened a brick-and-mortar bookstore, over two decades after upending the way people buy books and other media—by acquiring Whole Foods, a grocery chain with its own supply and distribution network, and a discerning clientele.
Why should we in the Philippines care?
The obvious answer: it’s yet more proof that supply chain is no longer just a competitive advantage, but a prerequisite for competitiveness—and Amazon knows this more than most.
The less-obvious answer: we might see this sort of synergy at work in the coming years, if not months. There are several online groceries in the country: PureGold and WalterMart have their own operation, while SM Supermarket has tied up with MetroMart. However, their services are limited to major districts in Metro Manila.
But remember, SM has over 200 groceries across the country, both standalone stores as well as anchor stores in their malls and residential developments. Also remember that they have acquired a stake in 2GO, which boasts of a strong distribution network, as well as its own warehouses catering to both dry and cold storage. Is it a case of “sooner rather than later”? Watch this space. Or your smartphone screens.
2017 SCMAP Supply Chain Conference: We are proud to announce two more speakers to our flagship event on September 21-22. Peter Wallace—respected voice of the business community and head of the Wallace Business Forum—will be one of our keynote speakers. Suzie Mitchell, country managing director of DHL Supply Chain Philippines, will join our session on the future supply chain. This year’s event is definitely making history, so book your seats now—visit scmap.org for details.
Henrik Batallones is the marketing and communications executive of SCMAP. A former board director, he is also editor-in-chief of the organization’s official publication, Supply Chain Philippines. More information about SCMAP is available at scmap.org.