Whole Foods: Amazon’s Huge Mistake
Whole Foods: Amazon’s Huge Mistake - Robin Lewis

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At some point just around the birth of Amazon, Jeff Bezos said he must get big fast, (to own unreachable market share ahead of copycats) and he must get two categories right: grocery and apparel. He accomplished getting big fast in spades. Probably faster than he expected. The grocery and apparel parts of the declaration, not so fast and not nearly right. He is still fiddling around with both.

Genius, Visionary or Megalomaniac?

So, just because Amazon\’s market value is around a trillion dollars, give or take a billion or so, doesn\’t mean by itself that Jeff Bezos is a genius. Perhaps the size of Amazon today is simply due to the fact that three decades ago he anticipated how huge ecommerce could become and how quickly. Now that e-commerce has happened, in hindsight we could say, \”what\’s the big deal? That was just the prescient common sense of a gifted engineer.\” And maybe it was. I\’ve always said that common sense is often brilliant.

However, the still \”fiddling around with\” getting grocery and apparel right reveals, in my opinion, not only a lack of brilliance, but a deficit of common sense. He was so right about leading competitors by getting big fast in this era of light-speed velocity.

He sidestepped the necessity of being a brick-and-mortar retailer by focusing on tech-infused e-commerce exclusively. And he led the way for a cascade of startup digital retailers. For legacy retailers, he put them in a tailspin forcing the issue of tech \”buy or build.\” However, his commonsense deficit missed the fact that he would also have to play in the physical world, thus raising the issue of buy or build for Amazon as well.

Scaling Grocery

For Amazon to scale in grocery, given Bezos\’s mandate for speed — against the enormous investment in time, money and skills, required to internally build out the digital or physical models — it seemed a no-brainer to go the \”buy\” (acquisition) route, as long as the target was already a successful e-commerce or a brick-and-mortar retailer.

[callout]Too little and too late Mr. Bezos. A Kroger or other giant acquisition might have led to a number-two spot for Amazon in the grocery space.[/callout]

Therefore, when Amazon acquired Whole Foods for $13.5 billion, one could have said, \”How brilliant!\” Overnight, Amazon gained about 500 grocery stores and theoretically, the skilled organization to not only run it, but also integrate it onto Amazon\’s e-commerce platform. On second thought, one might remember Bezos\’ declaration of needing to get grocery right and me now saying not so brilliant, worse, not even good common sense; what a mistake. The Robin Report predicted this in 2016 in Whole Foods\’ Ham-Handed Moves and in 2017 in Did Amazon Grab a Poisoned Chalice?

Imitation Is the Sincerest Form of Flattery

And then there\’s Walmart. They led the way in the buy-rather-than-build world by scooping up Jet.com for $3.3 billion. In fact, as I suggested Amazon should acquire its way into grocery. Ironically, Walmart\’s overnight leap to acquire Jet\’s scale and skills might have been the catalyst for Amazon acquiring Whole Foods.

As both of their acquisitions play out, a case could be made that while each of their moves had strategic merit, the subsequent integration and tactical execution of the acquisitions have revealed major speed bumps for each. And worse for Amazon, in my opinion, Whole Foods was not only stumbling even before they were acquired, strategically Whole Foods could not provide Amazon meaningful scale in the grocery space. Compare with Walmart, which owns a whopping 30 percent share of market. Whole Foods served a small, upper-income niche which self-limited any major growth potential. On this point, at the time I scratched my head as to the brilliance, or common sense of Jeff Bezos. If his long-term strategy is to get grocery \”right,\” why didn\’t he acquire Kroger or one of the other larger, more successful grocers with about 2700 physical locations in the U.S. to fulfill online orders and become customer pick-up points for online grocery orders?

Walmart\’s Go-Forward Strategy vs. Amazon\’s Lurching-Along Concept

Amazon also mixes the \”buy\” strategy with a \”build\” strategy. The advantage of a build their own strategy is that they can try often and fail fast without investing billions of dollars. However, when testing yields a winner, the get-big-fast rule becomes a huge challenge. As widely reported, they plan to open a full-scale traditional grocery store in Los Angeles this year. One might judge this decision as an unspoken acknowledgement that the Whole Foods buy was not the path to becoming a major player.

Amazon Go, a cashierless convenience store model, (where, as we know, customers use their Amazon app to literally grab products off of shelves and leave the store without checking out), was launched as a test in 2018. After a lot of tweaking, Amazon apparently believes the model is ready for prime time. The new Amazon Go Grocery store has about 10,400 square-feet of space and 5000 items, including fresh produce, meats and alcohol. This is massive compared to the 20 or so original \”Go\” convenience stores clocking in at about 1800 square feet.

Hey, let\’s play this out. How many grocery platforms does Amazon intend to operate? They are experimenting with four models in various stages:

  1. Whole Foods
  2. The original Go convenience store
  3. The Amazon Go Grocery, large size cashierless store
  4. The traditional-like grocery store opening in LA

Does Amazon intend to find the breakout model among these four, that it can open its cash vaults to hammer Walmart, Kroger and the other traditional giants, as it \”gets big fast?\” Or do they intend to keep them all and strive to grow them profitably as a collective?

Message to Mr. Bezos

Too little and too late Mr. Bezos. A Kroger or other giant acquisition might have led to a number-two spot for Amazon in the grocery space. However, after the Whole Foods mistake and sticking your toe in the water with a \”Go\” model (small or big) and testing what is supposedly a more traditional grocery store in LA, you have lost time to the behemoth sprinting ahead of you in the physical world and sprinting close to your heels in e-commerce. In grocery, with a leading 30 percent share of the market, Walmart is racing into the new world with the ability to implement technology breakthroughs overnight in their 4500 stores (doubling as distribution centers).

In fact, as maybe the \”copycat\” you were afraid of in your \”get big fast\” declaration, Walmart appears to be trumping your cashierless model. Having tested and tweaked a prototype model, they recently opened a cashierless Neighborhood Market with more features than Amazon\’s frictionless concept. Online grocery pickup, same-day delivery and its Check Out With Me program, gives Walmart a defining edge.

The Check Out With Me program involves associates who can check out shoppers anywhere in the store with hand-held devices – just like the Apple store pioneered. Furthermore, its self-checkout will offer expanded lanes for large baskets and an employee on hand to assist as needed. Walmart has eliminated three potential frictions by letting customers check out wherever they are and giving them assistance if they need it. This customer service is critical in offering reassurance and the human touch to shoppers. And finally, of course, Walmart can roll this tech-enabled model out to its roughly 4500 locations. Over and out Amazon. If you had Kroger, you might have rolled out in second place, not an also-ran.

Insult to Injury

But that\’s not all folks!! Walmart is rolling out its own Prime program called Walmart +, WFS (Walmart Fulfillment Services for third-party sellers) and they are seamlessly integrating their operating functions across the business. Transitioning from siloed to seamless, technology advancements are spread across the largest retail enterprise in the world.

What was it that I said not too long ago? Walmart will become Amazon\’s biggest headache. Am I understating that prediction? Maybe so.

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