Second in the series of M&A is the Amazon-Whole Foods Acquisition which is one of our favourite acquisitions
Case: On June 16, 2017; Amazon acquired an upper end organic grocery chain “Whole Foods” for a whopping $13.7 billion, making it one of the biggest acquisition in the Retail Industry. Amazon being a leading E-commerce retailer growing at an incredible rate, has bought a Brick and Mortar Retailing company for a massive sum, this aggressive step of Amazon raised a lot of questions.
Why did Amazon invest in an offline company when the so called “Future” is online ? Is the “Future” really online?
Let’s Analyze this case and speculate the possible rationale behind this acquisition.
Analysis: The main motive of any company is to maximize its revenue, so there’s a need for the company to sell its products in as many ways/ channels as possible to enhance its reach. This process is referred to as Multichannel marketing which is the modus operandi of communicating with customers through various interaction channels such as Offline stores, Online retailing, Telemarketing etc.
In Simple terms Multichannel is all about giving choice to the “consumers”.
The uncomplicated reason of this acquisition is to enter into the offline channels as Amazon’s offline presence is very flat where it’s losing out customers. WholeFoods having a strong network in the offline retail sector consisting of 480 stores in places with heavy traffic was a good opportunity for Amazon to increase its Brick and Mortars and is also a great opportunity for Amazon to enter into the Food distribution market which is valued at $800 billion. These offline stores would help Amazon in cutting delivery costs and a faster delivery.
In another perspective Amazon not only bought Whole foods, it bought 480 valuable pieces of real estate, which can be used for many other purposes such as Warehousing, Amazon Go stores etc.
Delving deeper into some technical insights, the only reason behind this deal is not just for the multichannel marketing and the brand value, DATA is one of the main reasons for this acquisition .Whole foods having a huge customer base has data about their behavior deduced by their purchasing pattern. Using cutting edge technologies such as Reinforcement learning and Deep learning Amazon will ultimately be able to redefine the value proposition and completely change the grocery retail experience. Who knows ? Maybe, the next basket of groceries might be delivered without our interference, just before the older stock runs out!!
Now let’s answer one question about the future of retail. It’s not offline as it’s a very cumbersome process which involves a lot of effort,time and energy. It’s not online either as the retailers can’t validate and strengthen their rapport with their consumers and can’t properly communicate their brand. Lot of companies are adopting this multichannels to increase their revenue, this may seem like the near future, but one thing it lacks is the integrity between the channels. Omnichannel Retailing bridges this gap and it is formally defined as “Seamless and effortless, high-quality customer experiences that occur within and between contact channels.”
Let it be Virtual dressing rooms where you can check your dress without actually trying it out or leveraging self checkouts which is checking out of the store without the hassle of standing in line, personalized pricing etc. This definitely seems to be the future of retailing. This is Amazon’s vision of acquiring Wholefoods, where it could use the combination of both Bricks and Clicks, and the future is the convergence of both.
The above analysis can be used to explain the Walmart Acquisition of Flipkart too, as Walmart is trying to increase its online presence.
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