Amazon's Deal for Whole Foods Seen as Ideal for Urban Pickup and Delivery Hubs
June 17 2017 - 9:16AM
Dow Jones News
By Erica E. Phillips and Jennifer Smith
Amazon.com Inc.'s purchase of Whole Foods Market Inc. could fill
an important logistics gap for the online retailer, providing
hundreds of stores perfectly positioned to serve as pickup and
delivery hubs for urban customers.
For more than two years, Amazon has been building out a network
of urban warehouses, located in highly populated neighborhoods, and
offering "Prime Now" delivery of food and sundries within a one- or
two-hour delivery window. They are essentially large convenience
stores, without the customers.
Adding the more-than-430 stores in Whole Foods's network would
expand Amazon's current neighborhood network by a factor of at
least five, logistics experts said Friday. "It's going to give them
little warehouses all around the country in some of the big
markets," said Michael Knemeyer, a professor of logistics at Ohio
State University's Fisher College of Business.
Prime Now warehouses are around the same size as grocery stores,
or slightly larger, and in urban areas where Amazon shoppers live
and work, and delivering mostly same-day orders -- some within one
hour. Inside, there are pallets of bulk items like paper towels and
cases of soda, shelves of produce and a few freezer and
refrigerator aisles.
That is a contrast with the behemoth fulfillment centers that
are the backbone of Amazon's extensive and expanding logistics
operations. Those are located in far-flung suburbs and stock a much
wider array of goods, fulfilling and shipping orders for delivery
within two days or more.
One potential immediate benefit from buying the grocer is the
chain's refrigerated storage areas, which would have been expensive
to install across a network of basic warehouses, experts say, as
Amazon seeks to build out its own grocery business.
"Setting aside food, the larger opportunity to build out what
many refer to as the final mile to the consumer is now in sight,"
said Dave Beaird, a supply chain consultant.
"Will these locations become mini-fulfillment centers to help
execute local deliveries of not only food but also other items?
Will these locations become hubs for customer pickup, decreasing
some traditional transportation last mile costs? Or will they
simply remain as they are today? Which is very hard to believe," he
said.
Meanwhile, the partnership with Amazon may mean Whole Foods
doesn't need to rely as heavily on its storefronts.
Recently, vendors on Amazon.com have increasingly been filling
orders from their own facilities or those of third-party logistics
providers, with Amazon never holding that inventory in its own
fulfillment centers. Under that strategy, Whole Foods may see many
of the products it stocks one day shipped to customers in much the
same way, skipping the store stock room entirely and heading
directly to customers.
"The opportunity to do direct to home [delivery] with Whole
Foods, as well as the suppliers to Whole Foods, could become
dramatic," said Benjamin Gordon, managing partner at BG Strategic
Advisors LLC. "You could keep the stores, but all the growth might
come from distribution center to home."
Write to Erica E. Phillips at erica.phillips@wsj.com and
Jennifer Smith at jennifer.smith@wsj.com
(END) Dow Jones Newswires
June 17, 2017 09:01 ET (13:01 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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