Quick Thoughts - Amazon & Whole Foods

Last Friday, Amazon announced their $13.7B acquisition of Whole Foods, and everybody around the industry went palm-to-forehead in the biggest "why didn't we see this coming?" moment of the year thus far.  

  • Purchase Price: $13,700,000,000
  • Stores Bought: 460
  • Total SF: 20,000,000 (approximately)
  • $/SF: $685

So, what's the play?  Amazon is proving that micro-warehousing is what makes their network amazing.  In 12 months, the distance a Prime Now package travels to my home went from 12.6 miles down to 3.1.  They just purchased a massive footprint of fantastically-located, affluent commercial real estate, and they'll hide their warehouses in plane sight, by letting you shop there.  How will Whole Foods change?

  • Product mix will get a lot tighter, based on each individual location.  Amazon has a massive data advantage on every other player, and they'll use this to populate individual stores with exactly what the neighborhood wants.  Adios Durian.  
  • Look for more uniformed employees filling baskets.  The marriage of Amazon's Prime Now users and Whole Foods shoppers makes way too much sense.
  • Look for the 365 Brand and store model to expand.  This price-conscious line (by Whole Foods standards) is pushed out aggressively in a smaller (14k-20k SF), urban store that sells "just the basics."  It gives Amazon a foot into more aspirational buyers as they attempt to move down-market.
  • I expect a rise in prepared food and meal kits.  It remains to be seen if Amazon will take down and roll in a Blue Apron or Sun Basket or go it alone (both are expected to go public this year at monster valuations), but there's going to be more.  Kroger and Publix have already announced plays in the space, too.  The end-game is a mom/dad punching up "I need a gluten free dinner for four ready to cook that contains broccoli and chicken" as they leave the office, and it beats them home.
  • Retail/customer facing store footprints may shrink.  As product mix tightens, I expect Amazon to use this network to move a lot more than food, and that may necessitate storing staplers, baby bottles and duct tape "in the back."

What'd I miss?