I think this is one of the stupidest things Amazon has ever done. There. I said it. Whole Foods is contracting. Two years ago they were the company that never closed a store. This quarter they're closing nine and opening six. Sure, that leaves 437 stores... but now they've gotta compete with Sprouts. They've gotta compete with Bristol Farms. Safeway rolled out Pavilions pretty much to capture the upscale market. And all of them charge you less for groceries. I've been to a 365 or whatever the fuck they call it. It was like an Apple Store that sold shampoo and dog treats. Shitty, shitty shampoo that worked worse than Tresemme and cost more, too. That's an experiment that's gonna go once. And I'd like to say that I've been to the Amazon store but it's like their magic drone delivery - they're testing it only with Amazon employees and have done for a year. It was supposed to open in March. It's June. 'sign up for updates.' Whole Foods is about ridiculous profit margins. Amazon is about an utter and total lack. Whole Foods is about wasteful, luxurious floor space. Amazon is about latter-day Tom Joads waiting 25 minutes to be searched so they can pick dildos off shelves and put them in boxes for $13.50 an hour. Which Amazon is still paying because that robot right now costs $22 an hour and will cost $20 an hour in 2020. Some of us remember Homegrocer.com. Some of us have interacted with Hello Fresh, Amazon Fresh and Blue Apron. And there is no part of that - none - that requires storefronts. I had dinner with a COO of a publicly-traded company once. They were big in the MI segment. I asked him "why did you buy (speaker company X)? Why did you buy (DAW company Y)? They have nothing to do with your core competencies." He rolled his eyes and said "Sometimes when we're lonely and sad we go shopping and bring home impulse buys." He left the company six months later, and the publicly-traded company sold one of their purchases back to the original owners and dissolved the other. They were dumb purchases. But it allowed the company to look like it was innovating into new business segments. Amazon and Whole Foods have fuckall to do with each other and both of 'em are about to get squeezed. There will come a time where people realize that Amazon isn't worth a thousand dollars a share (199:1 P/E ratio!) or that Sahale Snacks aren't worth $7 an ounce and that time is soon.
Amazon should have bought the Radio Shack leftovers and used them as a drop off for returns/pick up for free shipping etc. Amazon competes with Target and Walmart, not with Albertson's. And Sprouts is freaking amazing. I love this place and go there as much as I can when I go back home.
More than that, people misunderstand how Amazon works. Bezos wants them to sell everything. Literally everything. he wants to have at least one of everything in the world just to have everything in the world. That's not a business model, that's a delusion... but it illustrates what drives them, which is "we want to be the first place you look for everything." You can't have a showroom full of "literally everything." You can have a showroom of the top two items in your top 100 categories, tops. The bigger that showroom, the higher your margins have to be to pay for the floor space. Apple has stores because they can't legally have churches... but if they could, they would. You come to the Apple Store to pray to the Half-Bitten God. Microsoft has stores because they figured "well, shit, it's working for Apple" and because once they started making their own hardware (xBox, Surface, Zune), why not. Everyone else has stores because they sell shit there. Amazon's ultimate expression of success is when they are the only store in the world. This is their goal. This is their modus operandi. They succeed through monopoly; until then, they cut their margins to the bone so that their economies of scale drive everyone else out of business. Storefronts around me are going for about 18/sf/yr. A Whole Foods runs around 40,000 square feet. That's three quarters of a million, triple net (so more like $1.1m), just for the lease. Whole Foods spends $10b a year in rent. For the record, that's about the sales amazon gets from cloud services. that's without staff. That's without inventory. That's without all the other shit that makes a brick'n'mortar site. Check it out. HOLY SHIT. Amazon made money for two straight years. The fact that this is amazeballs is fucking disgusting - how does a company founded twenty goddamn years ago, whose stock is a thousand flipping dollars a share, get away with making it to consistent profitability just now? Because the market is insane. And has been. And they'll happily congratulate Amazon on their white elephant because it's "bold."
I'm half thinking Amazon might hold onto Whole Foods just to hold on to them until they can figure something out. I'm also half thinking maybe Amazon might use Whole Foods as localized mini-distribution centers (think courier or buy online and pickup in store). I was also thinking about Amazon and automation and what they could do to automate a grocery store. Aside from cashiers being the obvious one, I can't imagine much. Grocery is very hands on, from stocking and rotating product, to cutting and packaging meats and cheeses, to cleaning and maintaining equipment. I could see them finding ways to streamline things and make things more efficient, but I can't imagine there's anything Amazon could figure out that other companies haven't.
It's a mature market, shall we say. The majority innovation was the A&P back in the '20s or whatever, and then once they started adding Starbuck's and banks to them the segment was mature. People shop for groceries differently than they shop for other stuff. "Buying groceries" is an errand, with a list of things you need and some other stuff that might be nice because you cruise by it. It is a concentration of diverse foodstuffs and dry goods for your shopping convenience and that concentration convinces you to buy other things. You don't impulse buy Alexa the same way you impulse buy a candy bar. Nobody puts together a "home electronics list" the way they put together a grocery list. Even look at Fry's - they sell electronics and home appliances. Period. What do they have on the way to the checkouts? Candy, magazines and gift cards, same as any grocery store. People will go buy a plasma TV and pick up some M&Ms as an impulse buy. They will not go buy M&Ms and pick up a plasma as an impulse buy.
I believe there is room for more innovation in groceries, but I don't think it's around automating cashiers and checkout. For one, people generally, and those who shop at Whole Foods specifically, like interacting with staff. Amazon isn't dumb enough to not know this. I assume they're also not dumb enough to not realize that happy, helpful staff aren't created via treating your workforce like robots. I think that the biggest room for innovation in groceries is in just-in-time supply chain management. Obviously, the tremendous waste associated with having to stock a bunch of perishable shit at high quantities is a factor in keeping prices high. If Amazon can successfully use their supply chain magic to reduce inventories while maintaining adequate SKUs, then they should be able to keep wages decent, keep customers satisfied, and reduce prices. I don't know enough about the secret sauce of supply chains to know if this strategy is viable in the grocery space, but if anyone can figure out predictive grocery shopping behavior it is them and their unfathomable computing power.
I don't think so. I really don't think so. I think they're that dumb. There's this monolithic idea of Amazon the innovator and it's abject bullshit. Amazon is Crazy Eddie with VC funding. What has Amazon's principle contribution to the world been? Lower prices via the internet. Yet their search engine sucks. Their product discovery sucks. How do they get more efficient? bullying Fedex, then when that doesn't work, bullying OnTrac, then when that doesn't work, come up with their own shitty transportation system that pays freelancers $9 an hour to drive around sucking. Cloud services? That's a bunch of computers in racks. Prime? That's a Costco membership for a warehouse you can't visit. Go visit www.relentless.com. Bezos himself registered that back in the early days. THAT is their business model - beat everyone else. It was actually Circuit City's mission statement: put Silo out of business. Soon as Silo was gone, so was Circuit City. Amazon is the Third Fucking Reich of retail - blitzkrieg, exterminate, occupy. It's great until you actually have to hold and administrate. As a stable business model it's sorely lacking - Amazon Prime Video is a loss leader while HBO Go and Netflix actually make money. There will come a time when Amazon can't innovate their way into monopoly positions anymore and they will stagnate and wither. Amazon can't send me the correct fucking nightlight without five tries. Why? Half their shit is "marketplace" and they don't police that shit. Amazon can't get me a laptop charger in four tries. Why? Half their shit is "marketplace" and they don't police that shit. Amazon can't keep former vendors from phishing me about returns eight months dead. Why? Half their shit is "marketplace" and they don't police that shit. They have no secret sauce: they have employee brutality and long hours. it's like Korea - it was going to take over the Pacific Rim with its productivity until they had worker riots, a Hyundai factory burned and worker protections entered law. Amazon is one Upton Sinclair away from peril. I don't think it's predictive, and I don't think it matters. In grocery you stock the shit that sells. This is why I can buy capers at the neighborhood barrio but the giant Armenian/Mexican market doesn't have Planter's Peanuts (they do have bulk peanuts for 99 cents a pound). Amazon Fresh has SBC whole bean coffee for $5.99 for 12 ounces. I can buy Armenian half'n'half for $3.98 a pound. For that matter, I can go to my local grocery store and get locally-roasted organic for $5.98/lb. Locally-roasted organic at the Whole Foods down the street? $12.98/lb. Why? Because it's fuckin' Whole Foods. there is no secret sauce. Amazon doesn't have it, Whole Foods doesn't have it. What Whole Foods has is a contracting grocery chain whose business model is contracting and which they paid a 50% premium for.Amazon isn't dumb enough to not know this.
If Amazon can successfully use their supply chain magic to reduce inventories while maintaining adequate SKUs, then they should be able to keep wages decent, keep customers satisfied, and reduce prices.
if anyone can figure out predictive grocery shopping behavior it is them and their unfathomable computing power.
Oh man usually I'm on board with your business stuff but I don't agree with this as a bad idea. I think buying Amazon stock at 199:1 is surely a bad idea, definitely, but I also think Amazon is being really shrewd here. Blue Apron is not special aside from their place in proving that delivered groceries in meal format is a pretty profitable place to be. But they have nowhere near the buying power, logistical prowess, negotiating ability, or a dozen other things that Whole Foods has. More to the point, I highly doubt that putting things in a box and shipping it with minimal interaction with a human is their strong suit against Amazon. A company who also has perfected the art of buying other businesses and amalgamating them into the Amazon fold, and moreover has weaknesses against brick and mortars. Hard to order something from Amazon and get it in an hour here. They don't have facilities that could make that possible because they were trying to avoid charging sales tax here until just a few months ago. But if they're going to change the sales tax collection then they might as well operate locally as well. They just picked up 437 locations to do that from. Even if it just serves as a pick up vs delivery spot at first. Even better, they just picked up Whole Foods locations which were almost always picked for their proximity to wealthy markets with disposable income. When you walk into a Wal-Mart Supercenter and you look left, Amazon had pretty much the entire side of the store covered. But until this week, Wal-Mart had the market cornered vs Amazon on cheap groceries. There's pretty much no reason to believe that Amazon will keep Whole Foods the same. Like you said, Whole Foods is a profit margin driven business and Amazon is volume. But I bet that Amazon is going to change Whole Foods into the Amazon grocery store. Amazon Fresh or some equally market researched nonsense. Also, Whole Foods was a trend. I'm surprised it survived the housing crash. All in all, I really like Amazon from this end. I don't think I'd like to work for them. But, when you look at why I would choose Blue Apron over Amazon of a similar offering, especially when it's probably cheaper and more customisable, I'm going to switch to Amazon's version as soon as they offer it.
It's more of a niche than a trend. If it was a trend, it wouldn't have spawned so many successful copycats, influenced other grocery chains to step up their game a bit in regards to food quality, made terms like "fair trade" and "organic" well known, etc., and these things wouldn't have lasted 20+ years of which, we had a hell of a nasty recession during that time.Also, Whole Foods was a trend.
Okay, well walk with me here. Blue Apron and HelloFresh are fundamentally logistics companies. They buy food, parcel it out into recipes and ship it nationwide. Amazon indeed gets lower shipping rates than BA or HF do but fundamentally, you're dealing with a splinter faction of consumers: Blue Apron, for example, served 8 million meals a month. At lowest granularity, the cheapest subscription is six meals a week, or 24 meals a month. That means Blue Apron has, at most, 300,000 subscribers. Which is a lot of people. But it's not Amazon Prime numbers and it sure as shit ain't Kroger numbers. They're also just barely profitable (which they've accomplished by selling you a potato, some butter, a handful of mushrooms and a spice packet for $20), and their business model is basically "people too busy to shop but not so busy that they can spend an hour cooking spaghetti." I've been a member so long they've literally sent me a blue apron. But they aren't for Walmart shoppers. Whole Foods? Whole Foods has no special secret sauce. When I was figuring out the demographic model for birth centers I backtested with Whole Foods. I had veen run ZCTAs for college-educated white women making better than a living wage. I actually predicted a Whole Foods location in Seattle using Whole Foods locations in LA; lemme tell ya, they ain't places you wanna spend for logistics centers. More than that, Whole Foods doesn't own any real estate. They've got ten year leases with two 5-year options 'cuz that's how we roll. A lot of them are into their first option, which generally gets renegotiated at going rate; some of them are about to be. And maybe things are different where you are but around me there's a dead CompUSA, a dead Big 5, a dead Staples and a dead Safeway all within walking distance that could become "The Amazon Store" much easier and cheaper than flipping a Whole Foods would be (the Whole Foods I predicted, by the way? Dead Circuit City). And for the record - Whole Foods doesn't pick "wealthy markets." They pick aspirational markets. They pick places where people will occasionally spend more on fancy food because it makes them feel rich. Whole Foods isn't in Beverly Hills, it's in Venice. Yeah, it ain't in Compton for damn sure but to be honest, if I wanted a logistics center I'd put it in Compton. It's hella cheaper and a short drive from Venice. And Whole Foods sells high profit margin groceries. Kroger doesn't. Safeway doesn't. Albertson's doesn't. Aldi won't. Amazon does. We learned this stuff with HomeGrocer.com back the last time internet stock valuations were through the roof - groceries plus the gas to drive them around equals more expensive than people want to pay. Amazon may very well sell a cheaper Blue Apron. That will simply indicate that they're less interested in profiting in the space. "We lose on every sale but we make it up on volume." If anyone can keep the market hypnotized into thinking profits are unnecessary it's Amazon - but buying a high end grocery store for hand-wavey "logistics" and "brick and mortar" reasons is not going to make that job any easier.
When I was in business school, my teacher said something that stuck with me, and it has been shown to me over and over since. If your core competency is easy to reproduce, then you will not long be a company of any importance. It's why I don't like Snapchat, and it's why I don't like a lot of other 'hot' companies. They will one day completely be supplanted by their bigger rival who was nice enough to wait for them to do all the work. Blue Apron is, in my opinion, easy to replicate. Like you said, and I use it too and really like it, they put some food in a box for people who don't want to spend time shopping. The food goes together in ways according to a card in the box, and they tell you you're doing a solid for the environment like 10 ways along the way. Which, when you have a single egg packaged, strikes me as odd, but I also don't care. The point is, Amazon could do the same thing if they had a grocer. And they could do it cheaper. And they could charge less for it. Hell, they could even make it so that you could just go pick it up ready to go AT the grocery store. And that's a big profit consideration that wouldn't be available without this acquistion. The money in a grocery store produce section is in the slices of pineapple that cost 4 times as much as a pineapple. That's the kind of logistics I'm talking about. But operating closer to your customers also cuts the legs out from Wal-Mart. Wal-Mart has been struggling for years against the online shopper. They've tried to make their own online shopping experience, which in my opinion is not as good as Amazon's. They've also leveraged something against Amazon that Amazon can't keep up with, and that's same-day pick up for items already at the store. Or shipping free pickup for items that are bulky and would otherwise be expensive for Amazon to ship, but because Wal-Mart has a truck going there anyway they can do it no big deal. But Whole Foods also, is very profitable. So even if Amazon didn't do anything, they could still ride a big profit machine. If Amazon, simply continued their no dividends policy for example, they could pocket the cash that Whole Foods shares paid out in dividends which was $44 million. They could close locations that didn't fit their new idea for what Whole Foods looks like in 10 years. They could do a lot of different things with it.
A few things: Yes. Agree completely. This was the death of Groupon - both Amazon and Google said "shit, you want coupons? We got coupons" and that was that. They could. They won't. Silicon Valley doesn't think Blue Apron has much growth potential beyond what they already have, which is why they beat 'em up over profitability. Have you ever checked Amazon Fresh's prices? They're not making money on it, and they're charging more than the grocery store down the street. You're also reliant on the people who can't get a book to you in one piece getting an avocado to you in one piece. And sure - they could step it up. But now they're a food packing industry, rather than a food showcasing industry. Again, better to do that out in the Hinterlands and drive it in. There isn't room in the back of a Whole Foods to build a Blue Apron. If this is what you want to do, stream produce into your existing warehouses. Blue Apron, after all, ships across state lines just fine. Sure - but if Amazon can't sell me that pineapple for less than I can go buy it for, I'm going to go buy it. And Whole Foods can't prep pineapple for less than Costco or Kroger can. And while maybe they can ship it for less, Costco and Kroger have had twenty years since the first dotcom era to see if people want that and they don't. They forcefully don't. I knew a few guys who lost their rippin dotcom jobs at HomeGrocer and none of 'em have popped up doing the same. We tried that 20 years ago and nobody cared. Proximity to a Whole Foods doesn't change that, I don't think. Whole Foods: 437 stores. Walmart: 4100 stores. Walmart is now going online, Amazon is now going brick'n'mortar. I think that, more than anything, illustrates that the expansion is over. $500m a year and declining. That's about a million dollars a store. I mean, I wouldn't turn it down. But I wouldn't spend $13b on it, either. They're exquisitely sensitive to an economic downturn and, as you say, their core competency is easy to reproduce (Wild Oats has been doing it since '86; Safeway has been doing it with Sprouts since '00, then there's the Bristol Farms/Haggen/yourlocal contingent). Look at it this way: Amazon paid 26 years worth of profits for a grocery store. Or, put another way, Amazon paid about eight years' worth of AMAZON profits for a grocery store. I wouldn't have.If your core competency is easy to reproduce, then you will not long be a company of any importance. It's why I don't like Snapchat, and it's why I don't like a lot of other 'hot' companies. They will one day completely be supplanted by their bigger rival who was nice enough to wait for them to do all the work.
The point is, Amazon could do the same thing if they had a grocer.
The money in a grocery store produce section is in the slices of pineapple that cost 4 times as much as a pineapple. That's the kind of logistics I'm talking about.
But operating closer to your customers also cuts the legs out from Wal-Mart.
But Whole Foods also, is very profitable.