Page 1 - Case Study_Grocery Wars
P. 1
www.freebookslides.com
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