On June 16th, the e-commerce giant Amazon took everyone by surprise when they announced their purchase of the American chain Whole Foods Market. This represents a massive inroad for the pure player into physical retail…not to mention it is right into the backyard of the leading players in the food industry!
Here we review this decision, which is considered by many to have sent a shock wave through the industry and which marks the beginning of a mad dash by key e-commerce players to acquire ‘brick-and-mortar’ stores.
It can hardly be said that pure players are faring well in today’s climate. Besides the giants such as Amazon, of course. In the United States, the group founded in 1994 by Jeff Bezos represents a staggering 65% of the growth in e-commerce, and 20% of overall retail growth alone.
Jean-Marc Mégnin, Shoppermind CEO, has announced that “in France, we now have over 200,000 online shopping sites. Is this good news? I don’t think so, no. Recruitment, maintenance and customer retention costs are high for Internet businesses, and there’s a good chance that out of these 200,000 platforms, 190,000 will end up disappearing. Alongside the all-powerful Amazon, Alibaba or even Zalando, other pure players are having an incredibly hard time trying to break even.”
E-commerce has an easier time of it when it is supported by a classic retail model. “Carrefour and Auchan are obliged to sell online,” Mégnin adds, “but neither of these groups can claim that e-commerce assures their profitability.”
Invading brick-and-mortar commerce: from trials to acquisitions
Who would have imagined, not so long ago, that Internet giants would decide to invest in the brick-and-mortar retail industry? “I myself was convinced that Amazon would never open any shops!” Mégnin admits. “But it would seem that the group now believes it would be a mistake not to go after customers ‘in real life’. Selling highly strategic products online, such as fresh groceries, is too expensive.”
Amazon has therefore first run several trials:
– the delivery service for fresh groceries, Amazon Fresh. With this, however, lowering costs and successfully turning a profit is still tricky.
– Amazon Go, the fully automated shop in Seattle which promised “no lines, no checkout”. But the innovative system was quick to show its limitations (any more than twenty customers in the shop and it would stop working) and two months after it opened, the concept store was put on standby…perhaps to return with 100% RFID technology.
– Amazon Pickup, again in Seattle. After having arrived at the same conclusions as French actors Carrefour or E.Leclerc (yes, customers are happy to come and pick up their order, and even enjoy doing so!) Amazon are currently exploring drive-up services.
“But in the end, rather than wasting time on lots of trials, the pure player has decided to look at acquisitions!” says Mégnin. “Everything is moving so fast that Amazon are buying in expertise directly.”
This is all without counting the ascent of the Amazon Book Stores; eight of these new-generation bookshops already exist, and around thirty are expected to open soon.
Gaining a foothold ‘in real life’…
…by buying Whole Foods Market, which has 460 supermarkets spread across 41 of the United States, as well as Canada and the United Kingdom. The cost? 13.7 billion dollars – in comparison, Carrefour has 12,000 shops and is valued at 19 billion dollars! Amazon is making an explosive entry into the highly competitive food market. “Yes, pure players have realised that they need to invest in real life, and in order to do so have set about buying store networks,” says Mégnin. “Alibaba is doing the same in China, with the purchase of retailers like Suning and Hema.”
The alarm felt in the face of pure players repositioning themselves on the market is real. Mégnin worries that “the big companies, which are already huge, will take this approach even further, and make even greater efforts to seek out customers. What is more, they have money on their side, as brick-and-mortar establishments have been bled dry both financially and culturally…the giants in the new retail economy are acquiring the culture and expertise which they do not have…and they have the money and the support of their investor to do so!” Acquiring Whole Foods for $13.7 billion has already paid off, since Amazon’s value following the purchase increased by $30 billion. It’s going to be a tough fight.