Clarus Commerce CEO Tom Caporaso discusses why Amazon and Whole Foods combining is great for grocery shoppers, but bad news for grocery store competitors.
(As originally published on PaymentsSource on March 27th, 2018.)
Amazon’s gradual entry into grocery has been picking up speed since its acquisition of Whole Foods last year.
Recently, the benefits of the company’s Premium Loyalty program Prime have been extended to members who shop at Whole Foods markets. This is good news for Amazon’s 90 million Prime members, but it’s going to make it even tougher for other grocery retailers to compete.
The core strategy of Amazon has always been to listen to customer pain points and add valuable benefits over time. It’s how the company disrupted the retail industry. Now it’s time for grocery.
It’s the next logical step for Amazon to become the everything store for everyone. Prime keeps giving consumers fewer reasons not to join.
Amazon made its intentions clear with its $13.7 billion acquisition of Whole Foods.
It was a big step toward building brick-and-mortar footprint. Prices on thousands of items were slashed while Amazon also started to push some of its own products in-store.
Then, Amazon started reinventing grocery shopping (and retail in general) with the public opening of its Go store in Seattle a few months ago.
The store features hundreds of cameras, sensors and computers that track inventory and charge for items without the aid of a cashier. This allows customers to come in, pick up their items and walk out.
While this was strictly a proof of concept, the store decor had a striking resemblance to that of Whole Foods, and Whole 365 products were prominently displayed.
This was likely a step toward completely disrupting grocery and bettering the experience for consumers, especially Prime members. Speaking of Prime, after Go was opened, Amazon took another big step. Prime VP Greg Greeley shifted his focus to Whole Foods and loyalty.
Now, with Prime as the Premium Loyalty program of Whole Foods, the benefits keep coming in typical Amazon fashion. Free two-hour grocery delivery for Prime members is being testing in some major cities with a national rollout planned for this year.
Prime members who hold Amazon Visa rewards cards also get the full 5% cash back on their Whole Foods purchases (nonmembers get 3%). It wouldn’t be a surprise if Prime members will be able to skip the lines with access to Go checkout as well.
Prime will make it even easier for its 90,000 existing members. This new dive into grocery isn’t making things easy for everyone, however. The competition has a lot to be concerned about. Walmart had a disappointing fourth quarter last year and retailers like Target and Costco will likely find it harder to compete.
Walmart attempted to appeal to the younger, more affluent crowd that makes up most of Prime. That’s why it acquired Jet. Traditionally, Prime has always garnered more use from affluent shoppers. The same goes for Whole Foods.
Now Amazon seems be going after everyone. Amazon’s buying power will likely lead to even more lower prices at Whole Foods, making the grocery store more accessible to everyone. Amazon is even considering discounted Prime memberships to consumers in lower income brackets.
Amazon put companies like Walmart in check in traditional retail and now they’re cornering them with grocery as well.
Pure grocery chains could also be in trouble. Aldi made a big splash with its shift to affordable organic products. Price was the biggest differentiator from Whole Foods, making organic more accessible to people in lower income brackets. What reason will those customers have to shop there now if Amazon makes Whole Foods just as accessible while improving the customer experience?
This industry isn’t known for loyalty to begin with and it lacks great loyalty programs. Most grocery rewards programs consist of points and coupons, which don’t do much to develop real loyalty. Prime will give consumers a reason to keep going back without having to necessarily leave their homes.
Amazon has continued to disrupt consumer goods industries category by category by focusing on the needs of its customers. Prime makes it easy to shop and hard to compete.
Grocery has always been elusive for Amazon because of the perishable nature of the products, but it’s a category that makes perfect sense given the repeat-purchase behavior of its customers.
Now that Amazon has made its aim clear by acquiring Whole Foods, bringing Prime benefits into the mix is the next logical step to take over. 90,000 existing Prime members will be able to enjoy the ease and benefits out of the gate. The perks will entice other busy shoppers to join. It will be interesting to see what other Prime benefits come down the conveyor belt for Whole Foods customers.