Amazon, Whole Foods Ignite Grocery Digital Transformation: Part 2

In purchasing Whole Foods Market, Amazon became a major player in the grocery store channel, and also forced established retailers to go more boldly into the digital space. HomeWorld’s Supermarket Report looks at Amazon’s Whole Foods initiatives, online trends in the grocery channel and how technology is playing a key role.

Today, part 2 looks at the Whole Foods effect. Part 1 looked at the Amazon effect and part 3 will look at the influence of technology.

The Whole Foods Effect

Before last year’s Whole Foods acquisition, Amazon’s impact on food retailing was greater in terms of the apprehension it generated than of the actual impact it made, Stern observed. Major food retailers did develop strategies to address the Amazon threat. Walmart’s responses are well chronicled, including the acquisition of Jet.com, which focuses on everyday commodity products particularly for urbanites, and a store pick-up program meant as an alternative to direct to consumer delivery.

Last month, Jet said it would open a new fulfillment center in the northern reaches of New York City to bring same-day and next-day grocery and everyday essentials delivery to the Big Apple. Jet said the fall opening of the Bronx fulfillment center marks a milestone in its efforts to build momentum with urban consumers across major metropolitan markets.

And so the cut and thrust between established, brick and mortar food retailers and Amazon continues. Earlier this month Amazon announced that it would begin a grocery pickup service from Whole Foods Market locations in Sacramento, CA, and Virginia Beach, VA, rolling out the program to more cities through year’s end. The program offers pickup to Prime members, and promises making orders ready in as little as 30 minutes.

Amazon essentially acknowledged the importance of physical food operations when it purchased Whole Foods. At the same time, though, Amazon is setting that physical presence as a cornerstone for what will essentially be growth of the digital operation.

Whole Foods was a strategic choice. Whole Foods stores, in operation, are more or less traditional small supermarkets. Yet, Whole Foods always positioned its stores as an alternative meant first as a place for Baby Boomers and Generation X seeking an elite product assortment. In combining gourmet with natural, organic and other products reflecting social trends, Whole Foods focused on a slice of the food consumer market, satisfying upscale tastes while simultaneously earning itself a reputation as “Whole Paycheck Market.”

Then along came Millennials, with social concerns that made them an ideal demographic to convert into Whole Foods customers but with value consideration that made them a hard-to-sell generation.

Amazon, in the aftermath of the Whole Foods acquisition has addressed the pricing issue not only to make the food retailer more competitive versus its established rivals but also to position in more closely in line with Amazon’s own value proposition. Amazon has cut prices at Whole Foods and developed Prime discounts to begin turning the whole paycheck reputation around, especially among those consumers who participate in its Prime membership program or those who might be tempted to participate.

The initiatives include a widely touted Prime Day effort at Whole Foods offering various discounts and encouraging consumers to sign up for Prime memberships, although, from an in-store perspective, the promotions were limited in scope and a little difficult to quickly fathom in a shopping trip, observers noticed.

Before the pick-up program, Amazon had expanded two-hour Prime Now delivery from Whole Foods aggressively, including a late July roll out of the service to Fort Lauderdale, Miami, Palm Beach in Florida, parts of Long Island in New York, and select areas in New York City, beginning with lower Manhattan and Brooklyn.

At the same time, Amazon is expanding Prime Now delivery initiatives across the U.S., venturing in-home and even in-car delivery options that don’t require a customer recipient or even presence under an initiative dubbed Amazon Key.