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        116  Part One  Organizations, Management, and the Networked Enterprise



            Grocery Wars

            CASE STUDY

           O      n June 16, 2017 Amazon announced that      “consumer convenience.” E-commerce is soaring and
                                                               Amazon is a master at providing what’s known as
                  it was purchasing the upscale food market
                  chain Whole Foods for $13.7 billion. The
                                                             are too busy or otherwise occupied to leave their
           acquisition, completed in August of that year, was   food-delivery businesses are taking off because people
           Amazon’s largest, and sent shock waves throughout   homes to go out and shop. Americans are ordering
           the grocery industry. The purchase has profound im-  more of their groceries and meals online. A study com-
           plications for the future of groceries, the entire food   missioned by the market-research firm Euromonitor
           industry, and perhaps the future of shopping itself.  projects that the online market is projected to grow 15
             Even before acquiring Whole Foods, Amazon had   times faster than the rest of the restaurant business
           been expanding into groceries and physical locations,   through the end of the decade. Amazon can continue
           including bookstores, two Seattle drive-through gro-  to sell groceries online but it can also provide the cus-
           cery stores where customers can pick up online or-  tomer experience of shopping for food in person.
           ders, and a convenience store called Amazon Go that   Whole Foods can also be used as a delivery net-
           uses sensors and software to let shoppers pay for pur-  work for Amazon’s other non-grocery products.
           chases without waiting in line to check out. Amazon   Amazon has been trying to open warehouses closer
           has also acquired experience with online grocery sales  to customers so it can deliver orders in as little
           through its Amazon Fresh program. However, Amazon  as two hours, and Whole Foods stores will bring
           hadn’t quite achieved the success with online grocer-  Amazon physically closer to its shoppers. The stores
           ies as it had with books and media. Whole Foods gives   could become locations for returning online orders
           Amazon new ways to enhance its online business    of all kinds. Amazon could also use them to cut deliv-
           while establishing a presence in physical retail outlets.  ery times for online orders.
             The grocery business is notoriously competitive   Several analysts have observed that Whole Foods’
           and low-margin, with profits of 1–2 cents on the  dollar.   urban and suburban locations are so valuable for
           Although Amazon is skilled at competing on low price,   Amazon’s delivery business that the deal could
           why take on this challenge? From Amazon’s stand-  be worthwhile even if Whole Foods pretty much
           point, there are several reasons why Whole Foods   stopped selling food. When Amazon bought Whole
           might turn out to be a very good investment. Groceries  Foods, it acquired 431 U.S. upper-income, prime-
           are an important purchase category, representing   location distribution points for everything it does.
           $800 billion in U.S. sales. A recent report by the Food   With Whole Foods’ footprint in affluent areas and
           Marketing Institute found that U.S. grocery sales could   Amazon’s expertise in supply chain and delivery, it
           grow fivefold over the next decade. Purchasing Whole   could upend both food retailing and food delivery.
           Foods helps Amazon become a major player in the     One expert has called Amazon a “life bundle,” par-
           grocery industry. Whole Foods takes Amazon’s physi-  ticularly for affluent Americans. Amazon Prime could
           cal presence to a new level, with more than 460 stores   become the cable bundle of the future—an annual
           in the United States, Canada, and Britain and sales of   subscription to a group of diverse services that give
           $16 billion in fiscal 2017. It will be within an hour or 30  Amazon a dependable revenue stream and a grow-
           minutes of as many people as possible.            ing, loyal customer base. More than half of American
             Amazon could use its $119-a-year Prime member-  households with incomes over $100,000 are already
           ship service, which gives customers free, two-day   Prime subscribers, and they spend more than $1,000
           shipping and other benefits, to offer Whole Foods   a year using this service. Affluent families regularly
           customers a better price on groceries, as it does for   spend $500 a month at Whole Foods. Once Amazon
           books in its bookstores. The stores could also serve   owns Whole Foods, its richest customers could be ex-
           as an advertisement to get more customers to sign up  pected to spend thousands of dollars a year through
           for Prime. As of September 2017, Prime had 49 mil-  Amazon. As Whole Foods customers are urged to sign
           lion subscribers in the United States, representing   up for Amazon Prime—and as Prime customers get
           about 44 percent of households.                   enticing deals at Whole Foods—Amazon’s penetration
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