Amazon’s most recent acquisition of Whole Foods is open to various interpretations, and people have different opinions about the deal. Clearly, the acquisition has drawn the attention of many industry experts and retailers around the world.
But what is Amazon really up to? Why Whole Foods?
I’ll try to answer these questions from a different angle and talk about the future of retail as a whole.
It’s no secret that Amazon wants to conquer the lucrative grocery market and beat Wal-Mart on that front, and the Whole Foods’ deal comes in to provide Amazon with the right weaponry to do that.
But looking beyond the deal and inside the mind of Amazon’s founder, Jeff Bezos, one can realize that the Whole Foods’ acquisition is not just a move to win a grocery retail battle against Wal-Mart, it’s also a step into the future.
What does that mean? Well, let me start by going through Bezos’ email to his employees on Amazon’s purchase of Whole Foods. In his email, Bezos announces the Whole Foods’ acquisition and then lists a few major points about the added value and enhanced capabilities of consolidating the largest online and offline retailers and about the upcoming changes. Bezos concludes by saying that the merger captures 85% of all ‘hipster’ purchases in the United States and that he is looking forward to capturing the remaining 15%. The conclusion by itself should be of utmost importance to any retailer, and I will explain why next.
There’s no doubt that Bezos is a visionary entrepreneur. From the moment he started Amazon back in the 90’s, he drew on a vision and followed through to bring his vision to fruition. And I think that the secret behind the company’s success story is staying true to Amazon’s vision ‘To be earth’s most customer-centric company’ all along. Now, if we evaluate the Whole Foods’ deal against Amazon’s vision, we find that the decision is in line with the company’s vision. Here’s why:
Millennials are reshaping the retail industry
Studies now show that Millennials have surpassed Baby Boomers as America’s largest living generation. According to Accenture, Millennials spending power will reach $1.4 trillion by 2020, representing 30% of total retail sales — a sizable market that can hardly be overlooked. However, understanding this generation’s disruptive buying habits and winning over their wallet is still a challenge for many retailers to date. But Amazon seems to be at ease with Millennials. This takes us back to the strategic vision of Amazon from its earlier days. A customer-centric company that was built for today’s market would have the proper capabilities and culture to understand today’s consumer, provide excellent customer experience, and build a personalized and intimate relationship with today’s largest generation. Hence, drawing on the right vision from the get-go is what gives Amazon today a distinctive edge over other online retailers. Millennials are old news by now, and Amazon realizes that. As a customer-centric and agile brand, Amazon, not only goes to where its customers are today, but also goes to where they will be in the future. So welcome to the Generation Z Challenge!
Generation Z will shape the future
If you thought Millennials were a challenge, wait till you meet Generation Z — also known as Generation ‘Snapchat’. What we know about this emerging cohort so far signals, even more, trouble for the mediocre shopping experience. As the first digital natives, Gen Zers have a unique perspective on the world. They have an even shorter attention span than Millennials, they expect a seamless shopping experience across channels, and they resonate with ‘Chipotle’ and good nutrition. According to Forbes, the births of American Gen Zers outpaced Millennials, and their purchasing power is at $44 billion today — a good reason for Amazon to go after this future generation. By owning the online and offline retail space and the technology behind that, Amazon will be in a good position to understand Gen Zers and eventually win their business in the future. The Whole Foods deal is not far from this strategic vision, since Whole Foods, as a brand, resonates with Millennials and Gen Zers alike. They value social responsibility and lead a healthy lifestyle, and the Whole Foods’ brand speaks to them in the same language, making it very popular among ‘hipsters’; and therefore an attractive buyout for Amazon.
What will happen next?
Today, Amazon is the largest online retailer — powered by a lot of innovation in the back-end. Moving forward, I think Amazon will continue to build a brand for the future and aim at owning not only the offline retail space, but also the back-end operations and product categories — especially fashion and health & wellness. That could mean diversified M&A and expansions across sectors, shifts towards green initiatives and organic products, and more physical presence and technological innovations on behalf of Amazon. In other words, Amazon aims at building a sustainable business model for the future, and the online-only doesn’t seem to be a viable model, as the young and affluent consumer tends to shop in stores too. The challenge now is to merge the online and offline retail into a seamless shopping experience, using Amazon’s technology and patents.
What does that mean for the retail industry? Well, if Amazon masters the shopping experience both online and offline, then that could shake up fashion as well as the entire F&B, restaurants, and consumer goods supply chain. Along with Wal-Mart and Target, we could probably see traditional brands, like Macdonald’s and Burger King, wrestling with Amazon.
A quick view on the Middle East:
The Middle East won’t be spared from the Amazon-like effect, as traditional, transaction-focused retail selling comes under threat. Amazon has already stepped into the region by buying Dubai-based Souq.com earlier this year. I think that many global brands will soon follow suit, which is a sign of trouble for many local retailers. I have speculated that something like this could happen in my article ‘Retail of the Future & the Middle East’.
If I were to give an advice, I would begin with Start-ups — since this industry is picking up in the region. I would advise building a sustainable, customer-centric company from the get-go, as it’s easier to build than to change.
As for the established retailers, I would advise them to consider a transformation — where necessary — by putting customers at the core of any business strategy. If I were to do it, I would initiate a change process starting with the company culture and recruitment system. I mentioned culture and recruitment, as key focus areas, because it’s a good practice to align the inside of the organization with an updated vision while controlling the influx of new hires. I know it’s painful and many people are against change, but the challenge is mounting up in the new era of retail and a multifaceted organizational change is becoming a necessity for many retailers— starting with culture and recruitment.
Managing Director | Transformational Leader | Omnichannel Retail Expert | eCommerce and Digital Marketing Strategist
Linkedin: Elias Hayek