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.