This past week, Amazon surprised many by buying Whole Foods in what was a massive deal worth more than USD$13 billion. While we were not surprised that Amazon bought a brick-and-mortar retailer, Whole Foods was not totally expected. However, the company has been looking at its ownership options lately, so that put it up there as an option.
J.C. Williams Group sees this as a brilliant move for both Amazon and Whole Foods. Both companies have a lot to learn from each other and the crossover of clients is definitely there—especially among Amazon Prime members. We see this acquisition as further proof that when Amazon finds a large industry that needs to be disrupted, they dive in with significant resources. This deal will also relieve the pressure on Whole Foods to innovate and produce quarterly earnings.
The question now for Canadian food retailers is: what does this mean for the industry? While Amazon has only stuck its toe in the water in Canada delivering packaged goods and shelf-stable groceries, it now has a brick-and-mortar presence that will help it really understand the dynamics of the Canadian food shopper and provide a base for selling fresh products.
Based on our Canadian E-tail Report, we know that the online penetration of grocery shopping is very low compared to other products. Part of this may be customer driven, but a lot of it is caused by the fact that there is very little opportunity for the Canadian customer to do all their grocery shopping this way. Canadian food retailers have embraced “click-and-collect” (Loblaws offers this at 135+ locations), but home delivery is generally not accessible to Canadians. Only recently did Walmart expand its delivery model to include home delivery. Despite the low online grocery penetration rate, Amazon is building its core presence in Canada as illustrated by the high percentage of Amazon Prime members in Canada (Source: RetailWATCH Canadian E-tail Report).
The Amazon acquisition will therefore put a lot of pressure on Canadian food retailers to hold onto their market share. Further proof that all Canadian retailers have a lot to watch on the Amazon front is that Amazon has committed to an enhanced presence here—moving to a new head office in Toronto and adding 200 new jobs.
Food retail will definitely not be a “business as usual” sector in the future. The industry leaders will all feel the impact of these moves including Walmart Canada, which is certainly a major player in this category.