Amazon Buying Whole Foods Will Cause More Ripples Than You Think

Yesterday, Amazon upset the grocery apple cart by purchasing Whole Foods.  In case you have been under a rock and missed this joke, I will post it for you.

Picture Jeff Bezos sitting around his house having coffee.

Bezos:  Alexa, Buy me something at Whole Foods

Alexa:  I just bought Whole Foods

Bezos:  Oh shit.

It’s easy to see some of the companies that are going to be threatened by this.  Here are the nation’s largest grocers.

Walmart is the largest seller of organic produce in the country.  Amazon and Walmart have been in some heated head to head competition for years.  Yesterday Walmart bought the Bonobos brand.  That’s nothing compared to Amazon going full bore into grocery.  Target is threatened for sure.

The other easy thing to think about is Amazon integrating grocery shopping with Alexa.  My first thought was my little cabin in northern MN.  I get Amazon there.  What will I be able to order on Amazon Prime via Alexa that I might have gone to town for?

One remark I heard was a grocer saying that Amazon doesn’t know a thing about the grocery business.  My question would be how much do grocers know about digital businesses?  Amazon has powerful voice search and certainly understands mobile a lot better than traditional grocers.  With drone delivery, grocery gets bigger.

There is no doubt that grocery is a far different animal than other forms of retail.  However, if you think about Amazon being a private equity firm and Whole Foods the target the animal changes a bit.  Amazon will keep the knowledge it needs from Whole Foods and integrate Amazon’s distribution model. The grocery supply chain is filled with breakpoints and is also run by unions in a lot of cases.  That might change a lot.

If I were a PE firm that bought a grocery chain, or a VC firm heavily invested in food distribution, I’d be worried.  Amazon can easily enter the prepared food home delivery space which was super crowded anyway.  If a firm segmented the market Amazon can enter that segment.  Plus, their back end costs can be allocated across several enterprises so the marginal cost to produce and acquire customers drops down.

Vivek Wadwha wrote a column about tech companies and he and I tweeted at each other about it the other day.  Vivek postulated that every industry will be disrupted by tech.  He also thinks it is going to be the big major tech companies like Amazon, Facebook, Google who will consolidate it.  For example, Apple and Google are working on self-driving cars.  Should GM, Ford and Chrysler be worried?

I agree with Vivek.  Every industry will be disrupted by tech.  It will happen in ways that we cannot imagine today.  The pace of change is pretty incredible.  But, if I look at United States business history as a guide, conglomerates almost never work out very well.  GE is an example of a conglomerate company and it’s always lagged the stock market on a return basis.  Some people might recall the 1980s when there was a wave of leveraged buyout activity and huge conglomerates were built.  It didn’t work out so well.  It’s easy to blame the leverage, but the lack of focus was a problem too.

One thing that Vivek asks a question about and points out is true.  Can tech companies use their core competencies across disparate industries and be successful?  I’d rejoin that question with a couple of others.  How do we define success?  Because they might be able to deploy tech across industries, but will it be beneficial to shareholders?

If you are an executive in a business and you aren’t doing the right things with technology, start learning about it.  Get to a place like the University of Illinois Tech Park and start brainstorming.  Amazon just showed you that competition isn’t linear, it’s 3D.