Are you Ready for Amazon-Whole Foods?

The grocery industry is changing – and it is about to change much faster.

Amazon’s pending acquisition of Whole Foods is the latest game-changer. Amazon is an aggressive innovator, and the merger is likely to permanently change both the online grocery model as well as the bricks and mortar model.

Shifting seas, such as these, create opportunities for big winners – and bigger losers. As a CPG marketer, how are you going to win in the Amazon-Whole Foods era?

Here are some suggestions:

More Innovation. Despite the talk about Amazon making its own products, such as Meal Kits, don’t expect a lot of new Private Label activity. Amazon has much bigger fish to fry. Reinventing grocery industry logistics is a full-time job, which we expect will be Amazon’s focus. Amazon’s online model succeeds by selling innovative products from manufacturers at better prices than other retailers – not trying to make its own products. This is good news for CPG marketers who have seen shares erode to Private Label. It is time to focus on innovation again instead of price competition.
Convenient Shopping Experience – Amazon’s major point of difference will likely be making grocery shopping more convenient and efficient, whether through Dash-buttons on your refrigerator, smart-carts that ring up your groceries as you load the cart, or drones that deliver products to your home on short notice. At some point Amazon will lean on manufacturers to adjust packages to better fit its logistics/ business model – the same way Costco did 20 years ago. Make sure you’re ready.
More Variety – Immense variety may be offered efficiently online, whereas the supermarket is limited to 20,000-30,000 SKUs before the doors burst. Amazon makes boatloads of money on SKUs that can’t be found in stores – particularly if the products have a clear niche target of “fanatics.” Bring back those “not ready for retail” ideas/ flavors/ packages – and let them incubate online.
Fresher – Amazon and Whole Foods shoppers are mostly the same people. Eighty percent of Whole Foods shoppers also shop Amazon, and 50% are Amazon Prime members. Why? Because they are mostly young and urban. And young, urban people – who are setting the trends – expect natural, organic, fresh food. It is not a novelty anymore – it is the cost of entry. If you’re one of those old-school manufacturers that still doesn’t make clean-label products acceptable to Whole Foods, it’s time to get in the game.
Authentic Brands – Products that sell online and at Whole Foods are more often new brands that offer something more authentic and exciting than the umpteenth line extension from BigCo. Expect to see continued growth in products that are built for a lifestyle and deliver on the full experience. If you are a BigCo, start looking at new brands for your biggest and best innovations.
Bigger Sizes + Auto Replenishment – Amazon’s profit model is improved when consumers buy big sizes/ multiples and/or when consumers sign up for auto-replenishment. That’s why Amazon’s “Subscribe and Save” is now so prolific online. If Amazon can do the same thing with fresh groceries – and get advance commitments from consumers for weekly auto-replenishment, the savings in inventory and unsaleables will be massive. Make your products “subscribe-able” by building products that your fanatics want to use over and over again.
Add-on Sales – Another Amazon technique for improving profitability is to maximize the revenue of each sale by proactively suggesting things to go with the core item you are purchasing. When was the last time anyone in the grocery store bothered to do that? Add-on items traditionally have gotten short-changed. As a marketer, it’s time to think about what other bells and whistles your consumers want to buy to improve their experience and offer it. You’ll soon have a partner to help with the upsell.
Lower Prices – Amazon wins on price in every category where it competes. That’s its success model. Amazon has rolled logistics savings into lower prices and accepted minimal margins to ensure it will not be undersold. Whole Foods is perhaps the least efficient, highest-priced grocery operator. Expect Amazon to fix this and Whole Foods to shed its “Whole Paycheck” moniker, which has stifled sales. With that problem solved, Whole Foods’ bricks and mortar operations will rival the largest grocery chains.

If you want to be more competitive, it’s also time upgrade your innovation program, GameChanger can help. Our Retail Lab testing program allows you to build and test new products in real time with real shoppers in real stores. It’s the same program successful entrepreneurs use to build new products faster with better input from real-world consumers. We offer testing in Natural Foods stores like Whole Foods, in traditional grocery stores or through online e-commerce.

For more information, contact us at [email protected]