When the news broke last Friday that Amazon is about to acquire Whole Foods, I wrote this:
Now we know who the first and best customer for the Amazon Go technology will be.
In February, we talked about what Amazon Go might evolve into:
It may be illuminating to look at where Amazon most likely gets the inspiration for Amazon Go from. Is it retail stores? Maybe. More likely though, inspiration comes from Amazon’s own warehouses, the company’s fulfillment centers. There is an obvious technological vicinity between technology assisting (and tracking) what warehouse workers are doing and shoppers shopping at an Amazon Go location.
Amazon Go only works under the premise that everyone owns a smartphone with the Amazon (Go) app installed. Only then an easy checkin / identification is possible. Only then the whole concept is feasable.
So, now we imagine customers going to Amazon Go locations to shop fast, with no lines.
Here is the thing though. Think of Amazon Go not as the evolution of grocery stores but as the evolution of Amazon’s fulfillment centers. Once one looks at Amazon Go through these glasses the whole thing changes significantly.
What Amazon is doing with Amazon Go and the Amazon Fresh Pickups is a rethinking of what local locations in a grocery value chain have to look like and what jobs they have to fulfill.
Combining this with Amazon Flex leads to a different end point for those locations than thinking about them as stores:
Amazon Go locations will in due time be frequented by far more Flex workers than customers. It will be more likely to have a split of say 95+% Flex workers and the rest consisting of customers, than the other way around.
Being able to walk right into an Amazon fulfillment center to get some groceries (and other products) will be a nice add-on for customers, instead of the main purpose.
For Whole Foods, this means the grocery chain fits neatly into an Amazonian pattern:
- Amazon itself was and is the first and best customer of AWS, getting AWS off the ground.
- Echo is the first and best customer of Alexa, getting the Alexa platform into homes and off the ground.
- Whole Foods becomes the first and best customer of Amazon Go, Fresh and Flex.
Whole Foods can get Amazon Go and Fresh off the ground. It has always been obvious that Amazon Go will eventually become a service that can be utilized by others. Amazon Go, a very smartphone-centric approach, has inherent network effects. (payments, data) To unlock those, Amazon Go has to, uh, go places, though.
“No-Line Lunch”, “No-Line Breakfast”, “No-Line Dinner”. Those are not slogans for grocery stores but for fast-food(ish) restaurant-type locations.
Amazon of course will not operate thousands of those locations in the US; let alone hundreds of thousands around the world.
What makes more sense is a franchise hybrid model. Like Amazon Marketplace, locations in this model would be (co-)branded with ‘Amazon Go’ (or something similar). But they would also be run locally by (more or less) independent actors (like a McDonalds restaurant) and could take up very different shapes and forms (unlike a McDonalds restaurant).
Whole Foods stores will become the testing ground for Amazon Go, Fresh Pickups, Flex integrations and more.
For Amazon Flex, Amazon’s uber-like logistics arm, and other logistics services by Amazon, this makes a lot of sense. (And do you see how Amazon is vertically integrating all kinds of company types here as well?)
Amazon will eventually build up an infrastructure that will help the company not just over the course of the year but in the holiday peak season as well. This infrastructure needs something to do over the rest of the year as well. Groceries can be a big part of that.
(Imagine this: Within ten years, the groceries you ordered via Amazon Whole Foods get delivered within 5 hours on the same day at the time you specified. Unless it’s close to Christmas. Then you maybe have to wait a day or two. Of course, you’d need delivery trucks that can easily be modified according to wether they have to deliver perishable goods or not.)
I hinted at this logistics aspect yesterday regarding Delivery Hero’s coming IPO:
It is not difficult to imagine this space being dominated by Amazon and ridesharing companies like Uber. Both possible parties deploying this use case to keep their delivery networks well utilized. (And thus calculating differently..)
Everything Amazon can put into Whole Foods will help its end-consumer facing part of logistics as well. It will also help establish a foods brand for Amazon.
In fact, ‘Amazon Whole Foods’ itself is a pretty fantastic brand. It is open enough to put anything eating related in: groceries, Blue Apron style meal-kits, restaurant meals, etc.
Industry analyst Ben Thompson has written about this service provider angle in “Amazon’s New Customer“:
Amazon is building out a delivery network with itself as the first-and-best customer; in the long run it seems obvious said logistics services will be exposed as a platform.
This, though, is what was missing from Amazon’s grocery efforts: there was no first-and-best customer. Absent that, and given all the limitations of groceries, AmazonFresh was doomed to be eternally sub-scale. […]
This is the key to understanding the purchase of Whole Foods: to the outside it may seem that Amazon is buying a retailer. The truth, though, is that Amazon is buying a customer — the first-and-best customer that will instantly bring its grocery efforts to scale.
Today, all of the logistics that go into a Whole Foods store are for the purpose of stocking physical shelves: the entire operation is integrated. What I expect Amazon to do over the next few years is transform the Whole Foods supply chain into a service architecture based on primitives: meat, fruit, vegetables, baked goods, non-perishables (Whole Foods’ outsized reliance on store brands is something that I’m sure was very attractive to Amazon). What will make this massive investment worth it, though, is that there will be a guaranteed customer: Whole Foods Markets. […]
In the long run, physical grocery stores will be only one of the Amazon Grocery Services’ customers: obviously a home delivery service will be another, and it will be far more efficient than a company like Instacart trying to layer on top of Whole Foods’ current integrated model.
Thompson makes a pretty interesting observation I haven’t thought of:
Amazon Grocery Services will be well-placed to start supplying restaurants too, gaining Amazon access to another big cut of economic activity. It is the AWS model, which is to say it is the Amazon model, but like AWS, the key to profitability is having a first-and-best customer able to utilize the massive investment necessary to build the service out in the first place.
Once you build a service infrastructure around food in general, why not go into every direction?
Here’s an amusing thought: What if, a few years from now, restaurants are getting their ingredients from Amazon Whole Foods for Business and deliver meals to their customers through Amazon Restaurants (or Amazon Whole Foods Restaurants)?
A one-stop-shop backend solution.
Wouldn’t it be very convenient for restaurant owners to even outsource reordering of supplies to Amazon? Because, Amazon would know best when you are going to run out of X and how much you’ll need if the company is also selling and delivering the meals you cooked with X. (and can compare this to thousands other restaurants)
Youcai is a B2B platform that links food ingredient vendors with restaurants. The idea is that by leveraging all of the data Ele.me has on restaurants and delivery demand all over China, Youcai should be able to link ingredient sellers, logistics providers, and restaurants efficiently to ensure that everyone has the fresh meats and veggies they need to keep China’s masses fed.
At its core Amazon is a services provider enabled — and protected — by scale.
And Whole Foods will be ground zero for food services by Amazon.
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- Post Whole Foods, What Will Amazon’s Grocery Strategy Outside the US Look Like?
- What Amazon Go Will Look Like in an Amazon Flex World
- Redefining Fast: Amazon’s Trademarks for “No-Line”-Shopping & The Model For Amazon Go
- Delivery Hero Plans a Big IPO. Does Its Business Model Have a Moat?
- Chinese Food Delivery Startup Ele.me Might Show The Way For The Future Of Delivery Hero Et Al