When Amazon acquired Whole Foods earlier this year in an all-cash transaction valued at approximately $13.7 billion, it certainly enlightened many loyalty marketers as to the clear convergence of the digital and physical commerce worlds.
Amazon CFO Brian T. Olsavsky talked about the early integration of Whole Foods during Amazon’s third-quarter earnings call last week.
“We’re really excited to have them as part of the team now after the acquisition in late August,” Olsavsky said. “What you see in the financial results for this quarter is it’s shown actually in the new physical store’s revenue component, $1.3 billion of revenue, $21 million of operating income. And that’s where you’ll be seeing the Whole Foods revenue showing up. In addition, that is, the cost of revenue, physical store’s revenue is going to be where we’re going to book any sales where the customer physically selects an item in a store. So, it will also include, or does include our Amazon Books. But if you step back on Whole Foods, again, I think we’ve had busy months since we’ve joined forces, offering lower prices on a range of key grocery items in the stores, launching the Whole Foods private label products on Amazon, the technical work to make Prime the Whole Foods customer rewards program, and we’ll have that coming out in the future. We’ve added Amazon Lockers to select Whole Foods stores. So, lots of activity, lots of energy and we’re really excited to show customers what’s possible when we join forces here.”
What does this Amazon-Whole Foods partnership mean for the future of loyalty marketers?
Scott Robinson, vice president, Design & Strategy, Bond Brand Loyalty, told Loyalty360 that Amazon’s presence in the everyday lives of consumers has expanded mightily since its early origins as an online retailer of books.
“Purposefully and methodically, this now $136B behemoth has disrupted virtually every sector, and it now appears ready to take its market-share-bite out of grocery, as evidenced by its recent acquisition of Whole Foods,” Robinson explained. “It appears Amazon has been readying itself for this Whole Foods acquisition, quietly developing its online grocery competencies through AmazonPantry and AmazonFresh–but, what consumers purchase to put into the household pantry doesn’t drive purchase frequency like fresh perishables and prepared foods do, and though consumers know Amazon for its logistics expertise, consumers don’t think of Amazon for its grocery expertise. Whole Foods, therefore, instantly lends Amazon credibility in this category.”
The potential for this acquisition is significant, Robinson noted.
“Whole Foods represents for Amazon a habit-forming reason for consumers to shop, and not just browse, even more often,” Robinson said. “And strengthens an already-strong loyalty program value proposition for Amazon Prime Members. Plus, Amazon gains 350+ additional potential brick-and-mortar locations for its Amazon Lockers. To Whole Foods, meanwhile, Amazon represents millions of potential new customers, including the very valuable and very engaged Prime Members. The readily apparent impact here is the disruption to grocery; meanwhile, the frequency with which consumers may soon shop grocery at Amazon will likely also buoy Amazon’s ability to take a bigger bite out of the categories it has already conquered. If, or rather when, Amazon cements consumer habits around grocery, Amazon will more readily be able to capture even greater market share in its other categories.”
The less apparent and more interesting impact, Robinson added, is the one ‘unlocked’ by Amazon’s recently announced new service, Amazon Key–described as, “…an advanced alternative to the key under the mat.” Prime Members may now give Amazon permission to remotely unlock their front door, to have their Amazon packages securely delivered just inside their front door.
“Amazon isn’t the first one to try online grocery, but what has plagued earlier attempts is the need to get temperature-sensitive items into the fridge or freezer, immediately upon delivery,” Robinson explained. “Earlier solutions have proven to be either too cost prohibitive such as outdoor lockable fridges or lockers at the homes of regular customers, or too inconvenient such as lengthy delivery windows during which the customer is required to be home to receive their purchases. Now, with the credibility of Whole Foods, and the conveniences enabled by Amazon Key, Amazon is poised to be the one to finally do online grocery successfully.”
Stellar Loyalty CMO Narina Sippy offered her thoughts to Loyalty360.
“Amazon has been methodically laying the groundwork for years with infrastructure investments and an unrelenting emphasis on speed and value, which has, excuse the pun, ‘primed’ them for the expansion we’re seeing now into areas like grocery,” Sippy explained. “The Prime program gave members a sense that they were special and established a very loyal customer base that isn’t just willing but appears eager to follow them into other markets. This is putting terrific pressure on everyone from the big-box retailers like Walmart to niche grocery alternatives like Blue Apron, while we’re seeing other retailers and food services publicly wooing an Amazon partnership. But Amazon has big expectations to meet as it expands; maintaining the gold standard it created around speed, value, and special member treatment will be paramount.”
Evan Magliocca, brand marketing manager for Baseman Insights & Marketing, told Loyalty360 that Foods has always focused on quality, not value.
“Now with Amazon at the helm, they can incorporate a complex mix of value and quality to offer a better product to customers,” Magliocca explained. “That’s where growth comes from for Amazon across any vertical—find out what the customer values—free shipping, low prices, expediency—and provide the best product possible within those parameters. Grocery chains are notoriously stagnant on that front—they move at glacial speeds on customer-centricity compared to just about any other industry. The one area they’ve used as a foundation, that they’ve been almost entirely predicated on is value, discounts, and rewards. Yet now Whole Foods has the support of the best loyalty program in any vertical. It puts the grocery industry on its heels. It places the onus on the rest of the industry to change, to provide better options and experiences for customers.”