Amazon Acquires Whole Foods
With its purchase of Whole Foods, Amazon has moved one step closer to world domination.
Since the news broke, every content outlet on the web has compiled a think-piece on the transaction’s impact, so we thought we would put a COHN spin on the acquisition in this edition of COHN Voices.
If a traditional grocery store (e.g., Kroger, Safeway) were a COHN client,
what brand marketing recommendation would you make?
COHN Voices is always one of our most popular blog formats, and it’s easy to see why. As with previous iterations, the COHN team nailed this edition with smart, forward-thinking perspectives on what the industry should be considering.
Anticipating that Amazon will work hard to disrupt the low-margin grocery business (recent studies show it’s about 2% profit), Safeway and Kroger should start working with some of their larger distributors to white-label their products and hopefully squeeze some margin and offer loss leaders to keep people in the stores and up their game with delivery. Amazon will surely continue their entry into high demand products such as diapers, batteries, etc. as they try to increase the margin on some of the typical grocery store purchases.
Amazon still hasn’t been able to crack the grocery store game — Amazon Fresh started 10 years ago. They’re hoping that Whole Foods will bring something they haven’t had to the game, which is real estate.
I would advise Safeway and Kroger to focus on service. Good, old-fashioned service.
I also want to add that they need to continue to up their game when it comes to customer loyalty offerings like fuel points and in-store savings. Maybe partnering with the other retailers in the grocery centers to drive local traffic. Let’s face it – the fewer people in store, the fewer people going to the liquor store, pet food store, local restaurant or bar.
I love how our friends at Regency are approaching this. The one thing Amazon can’t compete with (yet) is leasing and location. Companies who had the foresight to build strong leasing, development and acquisition strategies will rise to the top.
They have focused on higher-end retailers with services and entertainment options that are more internet resilient. Location is still king in retail and Regency is pushing against the media headwinds by promoting the incredibly strong locations they have. Locations with high populations and incomes with dominant grocers and strong merchandising mixes.
My approach would be to recommend that traditional grocers continue to focus on offering the freshest produce, with the best selection, in the most affordable way they can.
I know stores like King Soopers/Kroger, Walmart, etc., have started offering grocery delivery options. Are there advantages? Yes. It’s more convenient (who wants to go to the grocery store?). It’s a time saver (again, who wants to go to the grocery store?)
However, as a GenXer, unless there was something that kept me from going to the grocery store on my own, I would never opt to have my groceries delivered. I’m just too picky about the quality of the produce that I buy. I don’t trust that someone working at Amazon or King Soopers would pick out the same dozen Honeycrisp Apples that I would. And at $3.99 a pound, I don’t want to take the chance of paying for apples that will arrive on my front porch all bruised up.
For me, the same principle holds true even for other stores. It would be so much more convenient to buy my groceries while I’m on my weekly Target run. And even then, I don’t like the quality of their produce, so I make an extra stop at the grocery store.
The major grocery stores will do whatever they can to be price competitive against Amazon and Wal-Mart. They have no choice but to squeeze their vendors, add shelving costs and make the best case from a pricing perspective in an attempt to stay competitive. But they are going to have to find ways to compete outside of pricing.
- Establish closer marketing ties with developers. Developers who focus on grocery-anchored centers, such as Phillips Edison and Regency Centers, are better partners than adversaries. They have information, data, and research that can support consumer marketing efforts. The combination of a landlord and grocery-anchored tenant can be a real force IF they find a way to work in tandem towards market penetration and results.
- Socialization and Experience. Many people do not like to grocery shop. But many people love it as a way to get out, go out and see the neighbors. Groceries (and their landlord partners) need to find ways to keep the in-store experiential levels high and not just focus on advertising.
- Customer Service. When I go to Trader Joe’s, I am constantly met with smiling faces, smart people, and great service. Never do I have to look far for someone to help me find an item. The checkout experience is friendly, warm and efficient. Amazon prides itself on online service. Their system makes each of us feel special by offering suggested purchases, free shipping, and efficiency. The brick and mortar store will have to offer this combined level of service and efficiency to survive and thrive.
- Remember the kids. Kids need to be out and about. Moms and Dads need places to go with the kids. My local Kroger store (King Soopers) offers one-cent mechanical pony rides to the kids and free cookies in the bakery. The more stores can do to make it about the kids, the better off they will be.
All of these things working together can give the traditional grocers a way to compete against the Amazon/WFM behemoth. Let’s see how they react to this new set of marketing challenges.