Amazon’s purchase of Whole Foods may look like a ripple to retailers today, but it is going to result in a tsunami tomorrow

Posted in Perspectives
By Aaron Dauphinee on June 22, 2017

Last week the retail world was abuzz as Amazon, once again, opted for the road less traveled by announcing their acquisition of Whole Foods. It is hard to find a media outlet in North America that did not cover this story with major foreign publications in Europe, Asia and some developing markets also chiming in.

We’ve compiled three opinions to help frame our own perspective:

David Streitfeld for the New York Times published an article covering the risk tolerance of Jeff Bezos, Amazon’s founder, that highlighted the culture of big bets and experimentation that Bezos has created. Highlighting a history of successful, and not so successful (anyone remember Amazon Fire?) disruption-intended investments, Streitfeld interestingly noted, “As Amazon pushes on with its ceaseless experimenting, however, it risks being seen as less of a cute disrupter of the old and as more of a menace.”

CNBC’s Matthew Yglesias focused his thoughts on the fear factor this creates for grocery competitors in the United States and retail in general. Specifically, for grocery, Yglesias points out, “Competing with Amazon is terrifying for any incumbent business because the company’s executive team operates on a radical model whereby the company’s overall net income is nearly zero quarter after quarter.”

Tom Krazit at GeekWire was one of the first to hone in on the research test field that Amazon now has for retail machine learning and artificial intelligence. Krazit opens with, “Amazon didn’t acquire an iconic grocery store brand just for the quinoa: Whole Foods operates hundreds of retail data mines, and Amazon just married a world-class artificial intelligence team with one of the best sources of in-store consumer shopping data in the U.S.”

He further adds, “Whole Foods instantly gives Amazon a reliable source of the purchasing habits of well-off Americans, and that data can be used to train artificial intelligence models that will allow retailers to better predict demand and someday automate much of the labor involved in grocery retailing …”

“A few years down the road, if you’re an established but aging grocery brand — say Safeway or Albertson’s or Publix (try the subs) — you’ll either watch Amazon and Whole Foods eat your lunch with improved efficiency and incredible reach, or you’ll become an AWS customer because you’ll need the retail AI products that could emerge from this deal to compete,” is an articulate close of the article by Kratz.

RK’s Perspective:

We believe this bold move by Amazon will have an impact on the retail industry that is certain and agreed upon by everyone. However, the manner and the magnitude of the impact is less certain in this moment and it is fueling a storm of speculation that can be confusing for retailers.

Simply put, this is a “technology to the rescue” event for Whole Foods as Amazon’s automation, data analysis, and experiential tech (i.e. no check-out) and services (delivery and/or pick-up) will create an even more differentiated experience for Whole Foods customers.

In our discussions with C-suite retail executives worldwide we’ve identified that the need for change in the retail industry is an absolute fact. There is no debate that change must occur to remain competitive; the only outstanding question was when contemplation would shift to action. This clearly establishes that the timing is now and it’s created an urgency equivalent to responding to early warning signs of an impending tsunami!

So, what should retailers do to save themselves?

If you don’t already know the answer and haven’t started taking actions to change your retail operations, then you need help and you need it fast! The answer is that you need to understand how technology can automate business process and decisions, which drives efficiencies, which leads to optimizing business decisions that can fuel your growth. We believe the fastest and best way to reach this is through the adoption of cloud-based, machine learning software that addresses retail merchant business challenges.

But, even if you’ve already begun your digital transformation efforts, you now need to step up the urgency within your organization for integration of AI and cloud enabled solutions for your merchandising and marketing teams. To remain competitive, you need to also ensure that your technological transformation results in a step-change impact to your P&L that machine learning enabled software can deliver.

Do not be fooled. What seemingly may look like a ripple in the water with low consequences to your businesses is misleading. With this event, Amazon is gaining even more energy and momentum, which will result in tsunami-like impacts on retail where some survive and others are swamped.