Amazon acquisition of Whole Foods to bode well for dairy

By Mary Ellen Shoup contact

- Last updated on GMT

Whole Foods will add to the credibility of AmazonFresh where dairy is the second highest grossing category. ©iStock/krblokhin
Whole Foods will add to the credibility of AmazonFresh where dairy is the second highest grossing category. ©iStock/krblokhin
Amazon’s purchase of Whole Foods Market for $13.7bn will improve the e-commerce juggernaut’s brand equity in its online grocery platform, AmazonFresh, where dairy is currently a top performer.

“Whole Foods adds a locally relevant ‘face’ to the Amazon machine,”​ said Charlie Cain, executive partner of Building Oz in Seattle. “It provides them with tremendous credibility and brand equity.”

Building Oz provides strategy, branding and operations consulting to consumer product companies.

Amazon will also benefit from Whole Food’s regionally customized supply chain with hundreds of points of distribution, giving them quick access the desirable and lucrative local markets, Cain said.

In addition, there is an industry-wide consumer expectation for fast and free shipping that Amazon has been providing for a number of years. However, an in-store customer relationship (something Whole Foods has honed) is crucial to driving online sales as well, Cain said.

The deal is expected to close in the second half of 2017.

Familiarizing AmazonFresh

AmazonFresh

Obtaining familiarity with more consumers will extend particularly to its AmazonFresh service launched in 2007. The service allows customers in 18 metropolitan areas to order perishable items online and receive same day delivery for $14.99 a month.

In Q1 2017 Amazon reported that AmazonFresh generated $10m in sales with dairy taking the second top-selling spot behind produce. Frozen novelties and desserts such as ice cream ranked as the fifth best-selling category within the platform.

“For the innovators and early adopters, buying groceries and even produce online is exciting, but for most Americans the size of behavior change required is still too large to spread quickly,”​ Cain said.

“Whereas before a consumer may have been uncertain as to what to expect from AmazonFresh, they know and trust Whole Foods and are therefore more likely to try home delivery.”​ 

“Amazon’s purchase of Whole Foods exponentially increases the credibility and reach of AmazonFresh. This partnership is the first real threat to America’s dominant grocery chains.”

Whole Foods remains committed to ‘fresh food’

In a letter to customers, Whole Foods said it will not change its commitment to providing fresh food free of preservatives, artificial ingredients, and antibiotics. The retailer also said it does not plan to issue any layoffs due to the acquisition.

“We will continue to operate our stores and deliver the highest quality, delicious natural and organic products that you've come to love and trust from Whole Foods Market… And all eggs in our dairy cases will continue to come from cage-free hens that aren't given antibiotics,” ​the letter stated. 

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