Amazon.com Inc. spent two decades hastening the demise of the traditional brick-and-mortar retail industry. So why would the tech giant spend $13.7 billion to acquire an organic-grocery chain with more than 460 stores?
Continue Reading Below
The deal for Whole Foods Market Inc., which people familiar with the matter said came together quickly, presents Amazon with several potential gains. It could use the stores as distribution hubs to build out its online grocery-delivery business. Amazon also could stock gadgets such as its Kindle e-readers and Echo speakers, as well as goods from its burgeoning private label.
The bigger opportunity, though, is data.
Amazon for years has been looking for more ways to gather information about how consumers shop. It has long been rumored to be on the prowl for a breakthrough deal, even as it set up its own much smaller Amazon Go and AmazonFresh Pickup stores as experiments.
If the deal goes through, the combination likely will be powerful. Amazon and Whole Foods can join their online and in-store knowledge to better predict what goods to carry in each store, said James Thomson, a former senior manager in business development at Amazon and now partner at the brand consultancy Buy Box Experts.
"They'll build better private labels and squeeze national brands even more," Mr. Thomson said. "There's lots of opportunity to experiment."
Continue Reading Below
The deal came together so rapidly -- the companies signed a confidentiality agreement April 27 -- that Amazon's strategy for the acquisition is still largely in the air, according to people familiar with the matter.
Amazon shed little light on its plans for the chain of stores when it announced the deal Friday. A spokesman declined to comment on the company's strategy. Whole Foods also declined to comment.
One enticing aspect of a deal between Amazon and Whole Foods is the significant overlap, analysts say, between the companies' traditionally loyal customer bases.
A Morgan Stanley survey shows about 62% of Whole Foods shoppers are members of Amazon's Prime service, opening the door for cross-sell promotions to entice customers who shop at both to spend more.
Amazon, though, doesn't know how those customers shop in stores -- a gaping hole in data about its more than 300 million shoppers.
If the deal goes through, Amazon is likely to put a team of employees to work examining Whole Foods' strategy, cost structures and business practices -- as well as their data, according to former Amazon employees.
The online retail giant likely will add new ways to track in-store consumer spending. One option is letting people purchase with Amazon Pay, a PayPal-type solution that lets customers check out with their Amazon account information. Another option is creating a Whole Foods credit card, the former employees say.
"How consumers purchase in stores is drastically different from online," said Kevin Howard, CEO of Adroit Worldwide Media Inc., a retail-technology provider that has worked with companies including Whole Foods.
Primarily, consumers are more likely to browse and make impulse buys in store -- driving up the total purchase -- whereas shoppers are more targeted online, he said.
Amazon has spent time experimenting with brick-and-mortar already. Its bookstores, of which it now has eight open and another five coming, according to its website, have been used in part to start collecting data on how consumers naturally browse in stores, former employees said.
Shoppers typically use their phone app to scan books for prices in the stores, connecting their online profiles with their browsing in the real world -- not just online.
Amazon has had a more difficult experiment with Amazon Go, its convenience-style store in which customers scan their phones as they walk in, pick up items to purchase and exit without a traditional checkout. The public opening has been delayed, in part because of technological hurdles and Amazon's limited experience in managing the flow of customers and products in a physical space.
Amazon likely will implement changes at Whole Foods based on what it finds out about the grocery chain's shoppers, including changing prices and selection -- something right now that can vary widely based on the region, according to the former employees.
The data Amazon collects will likely help it decide which of its growing roster of private-label brands to expand and which new ones to launch, especially when it comes to consumables and food. Whole Foods already has a large private-label business.
Bringing together online and offline data can help Amazon learn how to entice customers to make more impulse purchases online, according to analysts and retail consultants.
"I don't think it's a coincidence that they're targeting these specific, highly affluent customers," said Mark Elfenbein, chief revenue officer at artificial-intelligence firm Sentient Technologies LLC, which works with retailers to better match the in-store shopping experience online.
"I'm a Whole Foods shopper. I go there for one thing and I come back with eight things and my bill is over $100 almost every time," he said.
--Julie Jargon contributed to this article.
Write to Laura Stevens at email@example.com and Heather Haddon at firstname.lastname@example.org
(END) Dow Jones Newswires
June 20, 2017 05:44 ET (09:44 GMT)