Amazon’s purchase of organic grocery store Whole Foods has ruffled a lot of feathers for the simple reason that it’s not just another acquisition. Amazon, known for its bold marketing moves and innovative strategies, has shelled out $13.7 million to buy Whole Foods and its 460 plus stores to mine all-important consumer data.
Amazon is a highly successful e-Commerce business model that has been emulated and imitated by dozens of companies.
The online retailer has spent years and millions of dollars to get a pulse on how consumers shop. Reports said the deal with Whole Foods will allow Amazon to marry online and in-store knowledge in order to more accurately predict which items and how many of each item, should be in their stores.
Interestingly, the two companies have a significant overlap in their customer bases. The Wall Street Journal cited a Morgan Stanley survey stating that 62% of Whole Foods customers also patronize Amazon’s Prime service. This in itself will allow Amazon to cross-sell products and offers to an already captive audience. It won’t take much marketing to convince these people to spend more.
Amazon is an online retail giant and cloud computing company founded in July 1994. The Seattle-based firm was established by Jeff Bezos. It is a highly successful e-Commerce business model that has been emulated and imitated by dozens of companies.
Whole Foods, on the other hand, already has close to 500 fully-functioning stores. It is a relatively small player compared to Wal-Mart or Kroger which control 14.5 % and 7.2% of market sales in the grocery industry. But its clientele is quite exclusive, upper middle class who can afford to buy high-priced organic food and sustainably sourced items.
Disrupting the Grocery and Retail Industry
Since the beginning, Amazon has been pushing the envelope when it comes to adopting technology and data. While it took a while for retailers to learn to track transactions and tie the data to predict orders and managing inventories, Amazon has always used data scientifically and with much success.
Amazon has tracked and recorded every transaction, made an effort to get to know its buyers, as well as suggested items based on buyer browsing and purchase history. Buyers see this in the now ubiquitous “remarketing tool”, or the ads that follow you to different websites. Sometimes, these are items you’ve looked at earlier, or products you’ve added to your shopping cart but did not check out.
Amazon started this bold trend of collecting, using, and analyzing various consumer data from over 300 million online shoppers, and the rest of the retail world eventually followed. However, it is a bit of a blind spot in knowing how consumers online and how consumer in actual stores behave.
Buying Whole Foods, which has a higher margin than Amazon at 5%, will give Amazon access to a wealth of customer information. The data from Whole Foods will be mined and exhaustively studied – cost structure, business practices, as well as tracking how consumers are spending while inside the store.
Using Machine Learning in Stores
Amazon could forever disrupt the industry by instituting cashless payment systems and other advancements like what they have at Amazon Go.
Amazon Go sums up Amazon’s vision for the retail industry. This bold concept is already a reality, but the store was only opened for the company’s employees in Seattle. The idea is to have shoppers walk into a store, grab the items they need, and just go. There will be no lines, no checkout counters, and no cash registers. The store runs using the most advanced tech in machine learning, computer vision, and artificial intelligence.
Customers will use the Amazon Go app to shop, with the items automatically being added as they are picked up. The total bill is then charged to the shopper’s Amazon account.
According to observers, the Whole Foods purchase completes Amazon’s plans to re-invent the grocery industry. The purchase goes beyond being able to control prices and selections or choosing which private label brands to expand or launch.
Having valuable online and offline data now gives Amazon the power to drive customers to shop for more items online.
A Glimpse of What’s to Come
Forbes, for its part, believes that there will be significant technology introductions that will come from the Amazon – Whole Foods story. This will include enhanced customer experience through personalized recommendations based on data science and machine learning.
Four possible scenarios:
- Facial Recognition – Technology is already in place to read through shoppers’ facial expressions and reactions as they shop. Computer vision can read through confusion, hesitation, or even delight. Going by the premise that shoppers are unsure of what they want until it is shown to them, Amazon can reconfigure its recommendation engine and have sales personnel offer timely suggestions. In the online setting, Amazon’s recommendation engine is said to boost sales by as much as 30%.
- Delivery – Amazon already has Amazon Fresh, a grocery delivery and pick up service offered to members. Acquiring Whole Foods can expand this service since they now have a presence in major cities across America.
- Grab and Go Shopping – Grocery stores may soon be configured as a larger, more complete version of Amazon Go. Consumers can just walk into a store with their mobile phones and select the items that they need. The purchases are automatically charged to their online accounts and credit cards. The added convenience of not having to line up at the checkout will encourage shoppers to go to automated stores instead of traditional ones.
- Price Matching – This could actually be a good thing. Amazon is known for its aggressive price-matching efforts; and experts are hoping that this would be applied to lower grocery prices, especially on basic commodities. The Bureau of Labor Statistics says the average American spends 7% of his earnings buying grocery items.
Whole Foods will not be the last company that Amazon will buy. In 2014, it bought video game streaming site Twitch for $970 million cash. Now, it is using Twitch technology to build games and explore a different platform. Whole Foods is just another chapter in Amazon’s bold quest to conquer the retail industry.