TO: Jeff Bezos, Amazon CEO
John Mackey, Whole Foods CEO
DATE: October 31, 2017
SUBJECT: Strategies to capitalize on Amazon’s Acquisition of Whole Foods.
While I may not have a direct knowledge of the strategy behind Amazon’s 13.7 US dollar bid for Whole Foods, I am confident that the move is not just about acquiring a means of selling high-end products online but re-investing the grocery business and creating a new business model. Amazon aims to become a major player in the grocery business by expanding its retail empire in this sector. Having in mind that this is the biggest bid it has ever had, it is evident that the company is expecting to benefit from the deal and outshine the competitors such as Walmart and other retail stores. Below are some strategies that Amazon can utilize to capitalize on the acquisition of Whole Foods.
Increasing Focus on Prime Customers
According to Consumer Intelligence Research Patterns (CIRP), prime shoppers are the most substantial spenders in Amazon.com, spending significantly more as compared to the regular customers. As such, Amazon should do everything possible to draw customers to the prime service. It should focus on improving subscriber retention in the program. Whole Foods would play a significant role in doing so. Whole Foods customers also subscribe to the Prime program in Amazon. The resultant overlap provides multiple prospects for Amazon. For instance, it could use the overlap to boost the prime customers’ subscriber retention. As a result, this will allow Amazon to gain a greater share of the retail budget of its prime shoppers.
Currently, the traditional grocery business model is an interlinking system of supply and distribution networks. Wholesalers specialize in specific products, and the major vendors pay huge prices to acquire eye-level shelf spaces in major chain stores. Amazon, with its huge number of regional distribution outlets, which are often bigger than most shopping malls, has a potential to cut out most wholesalers. When Amazon’s CEO started warehousing books, he cut out a single link from that chain and has since used that model to sell billions of other products. The key here is focusing on a more efficient warehouse-distribution model or, in simple terms, a much skinnier supply chain.
Re-inventing the Inventory System
Amazon’s massive power is based on its computer systems, which are vital in tracking the movements and locations of millions of goods. It could efficiently apply this computing power to the even-more complicated food distribution system that depends on transporting perishable products into stores and warehouses before they spoil. The big question is how Amazon will manage to disrupt the inventory system massively. In this case, it will establish direct connections with the farmers, and by so doing, the company will trim the farm produces distribution network. This, in return, will cut the middlemen out. Hence the company will be able to deliver a greater quantity of goods at a reduced price and more so reduce the time required to transport the goods.
Re-inventing the Logistics
Reducing the length and transportation time from the producer to the final user is one of the major keys to re-inventing the grocery business. As such, the decision to acquire an already established entrée in the system with Whole Foods reduces the expenses. Amazon should also focus on increasing their net employment by hiring employees across the company to add context to their expanding labor growth.
In the same way, we browse for books in a bookstore and then later on cook the food that we eat, which is among the very few exclusive human experiences that we are obliged to preserve. Therefore, incorporating the above strategies, Amazon has the potential to change the economics of this process in a profound manner. However, it will have to pay attention to the sensual dynamic at play.