If deal for Whole Foods goes through, the two firms can join
online and in-store knowledge
By Laura Stevens and Heather Haddon
Amazon.com Inc. spent two decades hastening the demise of the
traditional brick-and-mortar retail industry. So why would the tech
giant spend $13.7 billion to acquire an organic-grocery chain with
more than 460 stores?
The deal for Whole Foods Market Inc., which people familiar with
the matter said came together quickly, presents Amazon with several
potential gains. It could use the stores as distribution hubs to
build out its online grocery-delivery business. Amazon also could
stock gadgets such as its Kindle e-readers and Echo speakers, as
well as goods from its burgeoning private label.
The bigger opportunity, though, is data.
Amazon for years has been looking for more ways to gather
information about how consumers shop. It has long been rumored to
be on the prowl for a breakthrough deal, even as it set up its own
much smaller Amazon Go and AmazonFresh Pickup stores as
experiments.
If the deal goes through, the combination likely will be
powerful. Amazon and Whole Foods can join their online and in-store
knowledge to better predict what goods to carry in each store, said
James Thomson, a former senior manager in business development at
Amazon and now partner at the brand consultancy Buy Box
Experts.
"They'll build better private labels and squeeze national brands
even more," Mr. Thomson said. "There's lots of opportunity to
experiment."
The deal came together so rapidly -- the companies signed a
confidentiality agreement April 27 -- that Amazon's strategy for
the acquisition is still largely in the air, according to people
familiar with the matter.
Amazon shed little light on its plans for the chain of stores
when it announced the deal Friday. A spokesman declined to comment
on the company's strategy. Whole Foods also declined to
comment.
One enticing aspect of a deal between Amazon and Whole Foods is
the significant overlap, analysts say, between the companies'
traditionally loyal customer bases.
A Morgan Stanley survey shows about 62% of Whole Foods shoppers
are members of Amazon's Prime service, opening the door for
cross-sell promotions to entice customers who shop at both to spend
more.
Amazon, though, doesn't know how those customers shop in stores
-- a gaping hole in data about its more than 300 million
shoppers.
If the deal goes through, Amazon is likely to put a team of
employees to work examining Whole Foods' strategy, cost structures
and business practices -- as well as their data, according to
former Amazon employees.
The online retail giant likely will add new ways to track
in-store consumer spending. One option is letting people purchase
with Amazon Pay, a PayPal-type solution that lets customers check
out with their Amazon account information. Another option is
creating a Whole Foods credit card, the former employees say.
"How consumers purchase in stores is drastically different from
online," said Kevin Howard, CEO of Adroit Worldwide Media Inc., a
retail-technology provider that has worked with companies including
Whole Foods.
Primarily, consumers are more likely to browse and make impulse
buys in store -- driving up the total purchase -- whereas shoppers
are more targeted online, he said.
Amazon has spent time experimenting with brick-and-mortar
already. Its bookstores, of which it now has eight open and another
five coming, according to its website, have been used in part to
start collecting data on how consumers naturally browse in stores,
former employees said.
Shoppers typically use their phone app to scan books for prices
in the stores, connecting their online profiles with their browsing
in the real world -- not just online.
Amazon has had a more difficult experiment with Amazon Go, its
convenience-style store in which customers scan their phones as
they walk in, pick up items to purchase and exit without a
traditional checkout. The public opening has been delayed, in part
because of technological hurdles and Amazon's limited experience in
managing the flow of customers and products in a physical
space.
Amazon likely will implement changes at Whole Foods based on
what it finds out about the grocery chain's shoppers, including
changing prices and selection -- something right now that can vary
widely based on the region, according to the former employees.
The data Amazon collects will likely help it decide which of its
growing roster of private-label brands to expand and which new ones
to launch, especially when it comes to consumables and food. Whole
Foods already has a large private-label business.
Bringing together online and offline data can help Amazon learn
how to entice customers to make more impulse purchases online,
according to analysts and retail consultants.
"I don't think it's a coincidence that they're targeting these
specific, highly affluent customers," said Mark Elfenbein, chief
revenue officer at artificial-intelligence firm Sentient
Technologies LLC, which works with retailers to better match the
in-store shopping experience online.
"I'm a Whole Foods shopper. I go there for one thing and I come
back with eight things and my bill is over $100 almost every time,"
he said.
--Julie Jargon contributed to this article.
Write to Laura Stevens at laura.stevens@wsj.com and Heather
Haddon at heather.haddon@wsj.com
(END) Dow Jones Newswires
June 21, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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