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Amazon Fuels E-Commerce Sales with Whole Foods Acquisition

by Norm Nichols, Head of KeyBank's Income Property Group 08.29.2017

Amazon's purchase of Whole Foods continues to drive the conversation around e-commerce and retail. How does this marriage merge e-commerce with brick-and-mortar retail? What are the pros and cons of this arrangement? What might this mean for other CPG companies (e.g. Procter & Gamble, Colgate-Palmolive)? How can this impact the real estate needs for brick-and-mortar locations?

Amazon acquired Whole Foods for $13.7 billion in June 2017, The Wall Street Journal reports. The acquisition has stirred up quite a firestorm of speculation on the potential impact on e-commerce sales, not to mention the ripple effects it could create in brick-and-mortar retail, the grocery sector and consumer product sales.

Online retailers have become a major disrupter for traditional retailers. E-commerce sales have surged by 148 percent since 2007 and now represent 13.2 percent of core retail sales, according to Marcus & Millichap. That explosive growth is shaking up the status quo among traditional retailers. Companies are expanding online sales platforms and reducing their physical presence with smaller and fewer stores.

Amazon's latest acquisition could fuel even bigger leaps in e-commerce sales ahead as it gains a foothold in the grocery store business, which accounts for about $636 billion in annual consumer spending, according to Marcus & Millichap. Amazon is a dominant player in e-commerce sales with its offering of products that run the gamut from apparel and auto parts to books and computers. However, the firm has been looking for a way to expand its online grocery business for nearly a decade, and Whole Foods may be the perfect solution.

Amazon Goes After Groceries

Amazon first launched its online grocery sales and delivery concept, AmazonFresh, in Seattle in 2007. AmazonFresh has since expanded to serve about a dozen major metros, including New York City, Boston, San Francisco and Atlanta. CNBC reports that shopping for groceries online might grow 500 percent by 2027, with U.S. consumers spending more than $100 billion by 2025.

Amazon's existing presence in online grocery sales, along with the addition of 440 Whole Foods stores, has experts predicting that Amazon could beat out top players such as Kroger and Walmart to be the largest grocer in the country by 2030, reports Business Insider.

Amazon's aggressive move into a sector that has typically been known for its intense competition and very low margins is giving analysts food for thought. Some are speculating that Amazon might be using Whole Foods as a stepping stone to access a more lucrative sector — consumer goods ranging from toothpaste to laundry soap. One theory is that the company will use the Whole Foods stores as a distribution point to expand sales of its private label AmazonBasics brand into other categories. The company already has a long and growing list of AmazonBasics goods ranging from pet accessories and fitness equipment to bath towels and diapers.

Physical Stores Play a Key Role

Other industry experts believe that the sale reinforces the importance of omnichannel retail. In order to survive and thrive in today's changing retail arena, companies need to meet customers where — and when — they want to shop both online and in stores. This is not the first foray into brick-and-mortar retail for Amazon. The company has tested pop-up stores and has started rolling out bookstores in select cities across the U.S. However, Amazon's acquisition of Whole Foods gives the online retailer something it hasn't had before — a massive physical store presence.

One question that remains to be seen is whether it will be business as usual for Whole Foods, or if Amazon will leverage those stores as mini-distribution centers to deliver and return online purchases to consumers. And if it does, will it end up losing Whole Foods core customers in the process? Amazon is continuing to be both a disrupter and an innovator in retail, and it's forcing companies across the industry to rethink their own business models. Walmart is taking a note from Amazon's playbook and ramping up its own presence in the online world with acquisitions such as Jet.com and the online menswear company Bonobos, as noted by TechCrunch.

Retailers across the board are stepping up their game by investing in improvements to both physical stores and e-commerce platforms. Those retailers that don't innovate may find that they get left in the dust in a rapidly changing retail arena.


To discuss more on e-commerce, reach out to Norm Nichols and team at
Norman_V_Nichols@keybank.com



KeyBank is Member FDIC.

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