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Amazon Rocks Food Retail: Four things the industry needs to do

BY Randy Burt

Amazon’s acquisition of Whole Foods Market is sending shock waves through the world of grocery retail. This striking move introduces more disruption into the grocery wars. As the c-suites form their war rooms and build their responses, the industry faces an array of significant challenges.

1. Food retailers must think bigger and faster

The acquisition of Whole Foods invigorates and improves the credibility of Amazon’s grocery and fresh offerings. Combining Whole Food’s brand trust and food expertise with Amazon’s financial resources and relentless focus on customer experience creates a substantial threat to traditional grocers. Whole Foods’ store footprint also gives Amazon a new platform to integrate in-store and online sales.

The urgency level just went way up for grocers. Food retailers will need to move quickly to reevaluate their strategies, determine what needs to change in their priorities and focus, and ensure that they are building organizations and operating models that can move at the speed of digital.

2. The middle ground is uncomfortable

Amazon’s move magnifies the challenge of surviving in the middle. One battle is occurring online, with Amazon leading the way to create a digital shopping experience that provides both choice and operational excellence, particularly for premium customers. The other battle is in brick-and-mortar stores, where hard discounters such as Lidl and Aldi are entering or accelerating expansion in the U.S. market, poised to capture more of the low-income shopper wallet.

For most traditional food retailers, attempting to go head to head with Amazon is not an option, given the capital and scale at which Amazon operates. Competing with Aldi and Lidl may also be unrealistic without matching their operational leanness and asset structure.

Traditional grocers will need to accelerate their efforts to create a shopping experience that integrates the physical and digital worlds, deepen relationships with their customers, and dramatically step up efforts to reduce costs to enable investments in pricing, digital offerings, and in-store experiences.

3. M&A strategy should be broadened

Amazon’s purchase is likely to trigger a domino effect of consolidations. The U.S. grocery industry has already been consolidating in recent years. (Think Ahold and Delhaize, Albertsons and Safeway, Kroger and Harris Teeter.) A.T. Kearney’s 2017 Consumer and Retail M&A study, Off to New Peaks in Uncertain Times https://www.atkearney.com/consumer-products-retail/cirp-ma-executive-report reveals that most executives believe acquisitions will accelerate beyond the 2016 post-recession peak. Format innovators such as Sprouts, Fresh Market, and Fresh Thyme will remain interesting consolidation targets, but grocers will need to look beyond conventional targets to consider innovative players with digital, e-commerce and logistics capabilities. M&A strategies should be retooled to ensure a broad lens that considers firms that enable deeper engagement and loyalty from existing customers through improved in-store and online shopping experiences.

4. New partners are needed to win this fight

Grocery retailers will need to think more broadly and urgently about the ecosystem of partners needed to win both in-store and online. Because of capital constraints, most grocers will not be able to buy all required capabilities. They will need to find the right mix of partners across multiple areas, including digital shopper engagement, digitally augmented store and supply chain operations, e-commerce fulfillment (such as Instacart and Shipt), and both local and international food producers and farms. Reinvigorated partnership strategies will be vital for traditional players to remain competitive — and even differentiate — from both an experience and offering standpoint.

Food retail was already at a fever pitch in the U.S., but Amazon’s acquisition of Whole Foods turns up the heat. Conventional players need to act quickly to shore up their positions and accelerate efforts to differentiate and grow in a world that just got even more perilous.


Randy Burt is a partner in the consumer and retail practice of A.T. Kearney, a global strategy and management consulting firm, and an expert in food retail, merchandising and supply chain. He can be reached at [email protected]

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Amazon and Whole Foods: 5 things to know about the blockbuster deal

BY DAVID ORGEL

The food retail industry has been flush with big mergers lately, but today’s stunner has no precedent.

The announcement that Amazon plans to buy Whole Foods Market for $13.7 billion heralds the coming together of two retail icons with vastly different cultures — one a mainstay of the brick-and-mortar world and the other a master of online shopping. It also creates big challenges for competitors in the wider retail landscape, especially those focusing on groceries, beauty and health. The deal is subject to shareholder and regulatory approvals and is expected to close during the second half of 2017. Whole Foods’ CEO John Mackey will remain in his role. Here are five key points about the developments:

1. Marriage of Needs

This combination will serve important purposes for each side. Amazon desperately wants a bigger grocery presence to boost its already growing online grocery sales, and this gives the company a bigger beachhead.

Whole Foods needs the extensive financial resources of a giant like Amazon, especially at a time when it’s under pressure from investors frustrated over a lagging stock performance.

2. Heightened Competition

This deal signals a new level of competition in the retail space. That’s the message of the falling stock prices that immediately followed the announcement, impacting retailers such as Target, Walmart, Kroger, Costco, and Supervalu. The entire retail industry is now on notice that disruption is going to reach new levels, which shouldn’t be surprising any time Amazon gets into the picture. This deal will create new urgencies for competitors to get their e-commerce strategies in shape, from home delivery to click-and-collect.

3. Physical vs. Virtual

The word omnichannel was created for a situation like this. Amazon has been gradually backtracking into the physical stores business, including strategies to open grocery and convenience stores. The acquisition of more than 460 Whole Foods units would be the latest and biggest example of its embrace of physical stores. This will likely enhance Amazon’s ability to speed home deliveries to consumers by leveraging Whole Foods’ physical store base.

The merger announcement said, “Whole Foods Market will continue to operate stores under the Whole Foods Market brand and source from trusted vendors and partners around the world.” That means Whole Foods is being valued for its brand, even as the combination would enable new omnichannel synergies, including the ability to market Whole Foods’ brands through Amazon’s numerous channels.

4. Health, Wellness and Beauty Evolves

Whole Foods has been challenged because mainstream retailers have adopted many of its pioneering wellness strategies. That has pressured Whole Foods to keep moving the needle to differentiate and boost sales. Amazon isn’t uniquely qualified to solve this challenge, but it has a wide range of online distribution outlets and platforms that could help address this problem by making Whole Foods’ natural, organic and better-for-you items more accessible to consumers.

On beauty: Amazon already has a huge impact on beauty, with a wide-ranging online store that includes luxury, skin care and fragrance. Given that it already draws a large beauty audience, the merger provides a new, highly unique beauty product set from Whole Foods to showcase in front of that audience. So while most of this merger is about grocery, beauty also provides an upside.

5. Value Equation

Whole Foods has been long plagued by its “Whole Paycheck” image of being very expensive. After years of trying to offer more in-store values, the retailer opened a new format last year called 365, which is smaller and offers lower prices. Amazon, on the other hand, is the master of value, and its involvement presumably will help bring Whole Foods more in line with consumer price expectations, while hopefully maintaining quality. If Amazon can’t do it, who can?

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TreeHouse, Dallas

BY CSA STAFF

Eco-friendly home improvement retailer TreeHouse's new outpost in Dallas is billed as the nation's first energy-positive (meaning it will generate more energy than it uses) big-box store.

The 35,000-sq.-ft. space offers a curated selection of products, materials and technologies — some not available elsewhere—designed to promote healthy and sustainable spaces. It also offers turn-key services and programs, including kitchen and bath design. solar energy kits, home insulation and "smart" home installation.

San Antonio-based architectural firm Lake/Flato used TreeHouse's approach to products and materials selection, in combination with sustainable design practices, to create the store. It boasts saw-tooth roofs that are positioned to maximize the effectiveness of its giant, ultra high-efficiency solar rooftop solar array. A Tesla Powerpack (a rechargeable battery storage system for utility and commercial applications) is located at the center of the store. It stores the power produced by the rooftop solar array, deploying it for evening use and allowing the building to return excess renewable energy to the city's grid.

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