Amazon buying Whole Foods – Notebook

I was on vacation last week, so this notebook is a little stale. Perishable news. (JOKES!)

The basics

  • The deal size is $13.7bn, a 30% premium; expected to close in the second half of this year (Todd Bishop)
  • Highly likely to remain independent: “Reading between the lines of Bezos’ statement, Amazon is signaling that it doesn’t plan to disrupt what Whole Foods is doing with a major shakeup of the retailer’s infrastructure or strategy in the near term. Amazon has a history of allowing acquired companies — from Audible to Twitch to Zappos — to continue operating with relative independence, with some product and feature integrations.” (Ibid.)

Not good for competition

  • Investors really believe in that AMZN magic: “In total, those five grocery chains [Target, CostCo, Kroger, Walmart, SuperValu] shed about $26.7 billion in market capitalization between the market’s close Thursday and Friday morning, as investors worried that Amazon deeper push into the industry could be a death knell for some.”
  • EU too: “The worries weren’t just contained to U.S. markets. Some investors in the U.K. and Europe also saw the purchase as a sign that Amazon could take its grocery ambitions global. Shares of French retailer Carrefour fell sharply on the news, about 4%, while in London, Tesco shed 6% and Sainsbury dropped 5%.”
  • See chart too.

Synergies, strategies

  • More brick-and-mortar, foot-traffic, and distribution centers for Amazon: “the acquisition provides the AmazonFresh program, currently only in 15 markets, with 465 new locations [the Whole Foods stores] that generate eight million customer visits per week as well as 11 warehouses.”
  • Amazon now has a big foot-print across the US, at least in affluent neighborhoods.
  • Like Amazon, Whole Foods is big into private label: “Whole Foods generates $2.3 billion worth of private label and exclusive brand sales per year; its private label products account for 32% of items in Instacart’s food category, taking up far more of the shelf than Walmart Grocery (16%) and Peapod (6%).”
  • (Further) driving down supplier costs: “It’s also possible that Amazon will use Whole Food’s partnerships with suppliers to get more of them on the Amazon platform. Amazon and Whole Foods will be tough negotiators, but the lure of the 300 million customer accounts on Amazon.com, in addition to all of its other CPG-related programs, will be tough to turn down.”
  • More: “he scale at which Amazon is making use of this strategy should force CPG brands and Big Box retailers to make some major changes to their distribution strategies.”
  • Ben Thompson, with some multi-sided platform theory sprinkled in:
  • “The truth, though, is that Amazon is buying a customer — the first-and-best customer that will instantly bring its grocery efforts to scale.”
  • “What I expect Amazon to do over the next few years is transform the Whole Foods supply chain into a service architecture based on primitives: meat, fruit, vegetables, baked goods, non-perishables”c
  • “At its core Amazon is a services provider enabled — and protected — by scale.”
  • This should remind you of the “middle-man”/unpaid for buy in my warehouse/drop-ship type of advanced retail play that the likes of Dell made famous.
  • I want pizza and baby-wipes, not software – this kind of argument (though, not really “invalid”) makes me bristle. It’s like a pizza company saying they’re a technology company. As long as the pizza comes in the box and the paper-towels come in the mail, they can call themselves whatever they want…but the pizza shop and Amazon are, to me, a pizza and retail company. How they get the pizza into my mouth is not my problem. Since I’m a paying customer in these instances, it’s not like the “you are the product” epiphany of .com, eye-ball companies.

Instacart?

  • Whole Foods had invested in Instacart in May 2016. What up with that, now?
  • Laura Entis: “Just last year, Instacart and Whole Foods signed a five-year delivery partnership, which gave Instacart exclusive rights to deliver Whole Foods’ perishable items.”
  • I guess it’d make sense for someone like Walmart to acquire them. Can Instacart be stand-alone now?

Getting that cash

  • For TAM:
  • FMI put estimate the US TAM at $668.680bn in 2016.
  • Statista, on the US market: $606.26 in 2015.
  • Very old, but the USDA in 2011 said, “The [US’s] 212,000 traditional foodstores sold $571 billion of retail food and nonfood products in 2011.”
  • Online grocery TAM: “Last year, online grocery sales were about $20.5 billion.” The growth rates, of course, are huge compared to in-store.
  • More market slicing numbers.
  • Room to grow, future cash to grab:
  • “Grocery remains the most under-penetrated e-commerce category, with less than 5% of sales happening online. However, with 20% of grocery sales estimated to begin online by 2025, brands investing in digital will reap the rewards.” (Elisabeth Rosen)
  • Online groceries penetration: “The online grocery business is still in its infancy. Last month, for example, 7% of U.S. consumers ordered groceries online, according to Portalatin. Of this group, 52% already has an Amazon Prime account. Groceries represent “the final frontier for Amazon — they haven’t quite cracked the code on that, but they already have a relationship with consumers.”
  • Some interesting grocery spending trends, by demographic, from Nielsen in 2015, via Cooper Smith:

grocery-spending.png

  • Mint says that last year, my family of two adults and two kids spent ~$15,000 at the grocery store. So that’s around what you’re upper-middle-class people (or whatever I am somewhere in the 90th percentile) spend, I guess.

For us consumers…

  • Many predict either free or highly discounted delivery fees for Amazon Prime members. That certainly makes sense as Amazon Video and Music, and Prime Now, shows.

More

Big pay-offs in innovation take time and have confounding finances

A nice way of explaining Amazon’s success in charts, e.g., as compare to Wal-Mart:


Just thinking aloud without any analysis, it seems liken Amazon is an example of how difficult, long, and confounding  doing continual innovation as your business is. Many companies claim to be innovation-driven, but most can just eek out those “incremental innovations” and basic Porterian strategy: they improve costs, enter adjacent marketers, and grow their share of existing TAMs, all the while fending off competitors.

Amazon, on the other hand, has had decades of trying new business models mostly in existing businesses (retail), but also plenty of new business models (most notably public cloud, smart phones and tablets, streaming video and music, and whatever voice + machine learning is).

All that said, to avoid the Halo Effect, it’s important to admit that many companies tried and died here…not to mention many of the retailers who Amazon is troubcibg – Wal-Mart has had several goes at “digital” and is in the midst of another transformation-by-acquisitions. Amazon, no doubt, has had many lucky-breaks.

This isn’t to dismisss any lessons learned from Amazon. There’s one main conclusion, thought: any large organization that hopes to live a long time needs to first continually figure out if they’re in a innovation/disrupting market and, if they are, buckle up and get ready for a few decades of running in an innovation mode instead of a steady-state/profit reaping mode. 

Another lesson is that the finances of innovation make little sense and will always be weird: you have to just hustle away those nattering whatnots who want to apply steady-state financial analysis to your efforts. 

You can throw out the cashflow-model chaff, but really, you just have to get the financial analysis to put down their pivot tables and have faith that you’ll figure it out. You’re going to be loosing lots of money and likely fail. You’ll be doing those anti-Buffet moves that confound normals.
In this second mode you’re guided by an innovation mindset: you have to be parnoid, you have to learn everyday what your customers and competitors are doing, and do new things that bring in new cash. You have to try.

60m Americans have used voice devices, 35.6m devices estimated to be sold in 2017

According to a recent research report from eMarketer, 60.5 million Americans will talk at least once a month to their virtual personal assistants named Siri, Cortana, Alexa, and other as-yet unknowns this year. “That equates to 27.5% of smartphone users, or nearly one-fifth of the population,” eMarketer said. Link

screen-shot-2017-05-08-at-12-09-31-pm

More details on the study:

  • “The e-commerce giant’s Amazon Echo and Echo Dot devices will claim a 70.6 percent share of the U.S. market this year, the study found.”
  • That 60.5m figure is more like “penetration,” people who have tried voice stuff but aren’t active users. By device ownership (I don’t know if this includes or excludes phones with Siri and such): “The number of active U.S. users will more than double for the devices this year, to 35.6 million, eMarketer said.”

See more details over from TechCrunch’s Sarah Perez.

Personally, I still find all this obnoxious. But (a.) I’m more of a podcast and text person, and, (b.) hey, the Echo is a really nice Bluetooth/Spotify speaker.

Retail: tech slow to enable omni-channel, Amazon is far ahead as a threat

…a survey of the top retailers in the US and Europe. About 75 percent of them said that despite all the unprecedented investments they’ve made in retail over the last several years, they feel ill-prepared to handle and provide omni-channel capabilities.

Meanwhile, it’s clear that you need so look at online as the starting point of most purchases: “60 percent or more of in-store purchases start online ‘through digital engagement.’”

Amazon is quick to enter new retail markets:

Amazon reports e-commerce growth of 30 percent, whereas core retail is growing at only 2 percent. Amazon Fashion launched in a “very nascent way” in 2002 – it’s now the biggest fashion player in the U.S. Amazon has spent about $17 billion dollars on R&D around e-commerce. Walmart has spent under a billion. If Walmart cannot spend the money necessary to stay with Amazon, how will other retailers keep pace?

All of this was from a SFDC retail-focused person, no details on the survey.

Source: Salesforce Commerce Cloud CEO at NRF – 75 percent of retailers are “ill-prepared” for the omni-channel

Amazon is building an ‘Uber for trucking’ app

The app, scheduled to launch in summer 2017, is designed to make it easier for truck drivers to find shippers that need goods moved, much like the way Uber connects drivers with riders. It would also eliminate the need for a third-party broker, which typically charges a commission of about 15% for doing the middleman work.

This is one of those “software is eating the world” things that I would have thought existed already.

[T]he broader goal is to improve the “middle mile” logistics space, which is largely controlled by third-party brokers that charge a hefty fee for handling the paperwork and phone calls to arrange deliveries between shipping docks or warehouses. It would make shipping more efficient and cheaper not just for its customers, but also for Amazon, which

Link

Amazon grocery store has no cash registers, uses phone

Customers scan the Amazon Go app on their smartphone as they enter the store. The company spent four years developing “just walk out” technology, which detects when items are picked up or returned to shelves and “keeps track of them in a virtual cart,” Amazon said. There’s no checkout line — just leave the store with your groceries, and Amazon will charge your account.

Link

Amazon Echo owners spend 10% more

The research company found that owners of the Echo spent around 10 percent more after they bought the voice-powered smart speaker than they did before.

The NPD Group’s Checkout Tracking purchase monitor provided the data, analyzing customer spending and overall number of receipts, and found that there was also a 6 percent bump in the overall number of purchases made by Echo owners on Amazon.com when compared to their pre-Echo existence.

Source: Amazon Echo owners spend more on Amazon, says NPD.

Amazon Prime Day is biggest day for online retailer ever

The online retailer said worldwide orders rose more than 60 percent compared with the previous Prime Day.

Looks like things worked out well.

Some of the more popular “deals”

Source: Amazon Prime Day is biggest day for online retailer ever, sourced from my wife!