If there were any doubts that the grocery industry was on the verge of a major disruption, Amazon’s acquisition of Whole Foods just put it to rest. The deal, announced last week, is valued at $13.7 billion and received a considerable amount of media attention.
With the acquisition, Amazon, one of the most valuable brands in the world, is now officially in the grocery market. This move isn’t the company’s first foray in the grocery business—in the past, it introduced innovations like AmazonFresh, a delivery service, and Amazon Go, a register-less, grab-and-go store—but it is undoubtedly the biggest and most consequential to date.
By buying Whole Foods, Amazon now has the physical presence to compete with industry incumbents. Until this deal, traditional players had the advantage of offering an in-store experience—something that Amazon didn’t have yet at scale. With Whole Foods’ 450 stores, that has dramatically changed.
Grocery is just the beginning
There are plenty of reasons why grocery players should be worried. With Amazon’s technological horsepower behind it, Whole Foods will have the engine required to build an unbeatable innovation engine. It’s not inconceivable to imagine that Whole Foods customers will soon be able to order grocery items through Amazon.com or Alexa.
Some experts also believe that with Amazon behind it, Whole Foods might be able to afford to cut its prices—a move that could make the grocer more competitive against Walmart and Target from a price perspective. This in parallel with Amazon introducing lower cost Prime membership for citizens on government assistance programs.
But what makes Amazon’s move remarkable is that it’s a clear signal that the company’s ambitions know no boundaries.
“Now it’s clear that Amazon aims to sell customers everything, and therefore no retail spaces are safe,” writes Darrell K. Rigby of Bain & Company on Harvard Business Review. “If Amazon can acquire its way into groceries, what will prevent it from entering department stores—as Alibaba has done in China—or furniture and appliance stores, electronics stores, or even drug stores?”
What grocery players and other retailers can do to fight back
To survive retail’s next transformation, companies need to examine what makes Amazon a great company to begin with. Contrary to popular belief, Amazon’s biggest competitive advantage is not innovation. It’s not its impressive supply chain network either.
To truly understand Amazon’s success, you have to go back to its founder, Jeff Bezos, whose obsession with customer-centricity is widely publicized.
“If you have a customer-centric culture, that cures a lot of ills,” Bezos said in an interview in 2013. “Let’s say you’re the leader in a particular arena, if you’re competitor-focused and you’re already the leader, then where does your energy come from? Whereas, if you’re customer focused, and you’re already the leader, customers are never satisfied.”
Retailers should take up Bezos’ advice immediately. Industry incumbents still have some advantage today because they have the brand equity and scale to fend off newcomers like European entrants like Lidl and Aldi. Both brands have agreesive plans to expand into the US market making it increasingly competitive in the grocery store spaceBut the US incumbents need to leverage their brand equity now and start building a genuine, ongoing relationship with their customers before it’s too late.
"Retailers should take up Bezos’ advice immediately."
Forging long-term customer relationships has a tangible, very measurable impact on the bottom line and customer lifetime value. For example, grocery chain Price Chopper has been able to uncover unmet customer needs, launch sales and increase sales through ongoing engagement with 5,000 shoppers. Other companies, like Barnes & Noble College, have discovered new revenue streams and improved customer experience by getting closer to their customers.
Customer retention in grocery business now more critical than ever
Amazon’s acquisition received a lot of media attention, but it’s hardly the only notable move in the grocery industry. Food giant Nestlé, for instance, recently announced a $77 million investment in Freshly, an online subscription service for naturally prepared meals. Not to be outdone, Walmart has also been on a buying frenzy, picking up online companies like Jet.com.
In this time of significant change, all retailers need to revisit and strengthen their customer retention and acquisition strategy. At the core of this strategy should be long-term customer relationships that build deep customer understanding over time. Uncovering insight on what customers truly want and need is the last and only competitive advantage available to retail players today.