The largest acquisition of Amazon, a USD 13.7 billion deal for Whole Foods, a grocery provider of the United States, completed its one year on August 28, 2018. Amazon with its expertise and customer base plans to grab the major chunk of the grocery industry of the USA, which is currently dominated by the companies like Walmart, Kroger, Costco, and Target. This deal alarmed the other market rivals to improve their online delivery, in-store pickup, strengthen supply chain, enhance technology, reduce the prices and so on to retain their existing customers and combat the growing competition.
The advent of Amazon in the USD 800 billion industry of groceries has increased the threat to the competitors in the country. It is expected to have a great impact on the current market status of the leading companies, where Kroger is the largest supermarket chain of the US, food and drink accounts more than 50% of sales of Walmart and Costco, and groceries contribute almost one-fifth of Target’s revenue. The online sales for the groceries are only 2% today but are expected to reach almost 18% by 2025, which will provide a competitive edge for Amazon.
Whole Foods accounts for 2.5% of the grocery market of the country, providing services to smarter and elite category of people compared to Walmart and Kroger. The acquisition of Amazon would provide the overhead required for Whole Foods to attract more consumers and increase its market share. Its counterparts are also introducing new digital tools like the partnership of Costco with Instacart and Zest labs to deliver fresh goods on the same day and safeguard the product freshness during the supply chain respectively.
As of now, consumers in the United States prefer physical stores and store picks for their groceries. This preference of the customers benefits companies like Walmart that is having availability to 90% of the population within 10 miles of radius. Walmart is currently having 4,360 stores in the country compared to 470 stores of Whole Foods. Additionally, 1,800 Walmart stores offer free grocery pickup and plan to increase this number to 2,200 by the end of 2018. More than half of the Walmart’s increased digital sales were contributed by the grocery pickups. The partnership with Postmates and DoorDash helped Walmart in improving its online grocery delivery, which it believes would cover almost 40% of the population in the USA.
Other market giants like Target and Kroger are increasing their sales with partnerships and technological improvements. In 2017, Target acquired Shipt, a delivery start-up for groceries to fight the Prime Now same day delivery of Amazon. Kroger also increased its share in Ocado, a British online supermarket for automated warehouses, brought meal kit company Home Chef, and signed a deal with Nuro, a tech start-up for driverless deliveries. Simultaneously, Kroger increased its own ClickList pickup service and introduced its own delivery services called Ship for dry foods. With 1,250 curbside pickup stores, Kroger providers delivery service from 1,200 stores with the help of Instacart and other partners.
At Whole Foods, the impact of Amazon is increasing, and the decrease in the prices have improved the customer traffic. In this one year, the same-store sales have been increased by 3% and the Prime Day sales in July brought decent profits to the company. Amazon uses Whole Foods to steadily increase its Prime purchases by providing special discounts and electronic sales in the store, which proves the long-term massive growth plan of Amazon. At the same time, Whole Foods is improving its delivery and pickup services to sustain from its opponents. However, it is difficult for Amazon to match the store sales of its competitors, who can improve their online groceries through mergers and acquisitions.
On the whole, the acquisition of Whole Foods by Amazon will benefit the former as the store picks are growing and the grocery products market is expanding steadily in the United States of America.