Why Amazon buying Whole Foods actually matters

June 19, 2017

PUBLISHED BY Nathaniel Krasnoff

I recently shared this TechCrunch article on my Facebook, and got some positive feedback that maybe I should write my own post. So here I stand before you sharing my own two cents on the acquisition. As always, if you have any comments please please share them below, and you can also get a hold of me and our team at Wildcat at ideas@wildcat.vc. We are looking forward to hearing from you.

Let’s start off with giving credit where it is due… Jordan Crook’s TechCrunch piece is great, and I meant what I said when I thought it was the best piece I had read so far on the acquisition. However, the piece isn’t interesting to me because of Instacart, it’s interesting to me because of the implications about the broader landscape of last mile delivery and retail.

So, let’s talk about the journey here:

  1. Amazon wants to own the entire system- no one would argue this.
  2. Amazon builds its own service, Amazon Fresh, to deliver groceries to undercut all these heavily Venture Capital subsidized startups of which Instacart is just one of many.
  3. Amazon gets back into physical retail, and in December they announced their store of the future concept through a video that conveniently happens to feature one of my classmates from CMU. Represent!

The next part of this equation is the unit economics of delivery. The most expensive part of the last mile delivery is the act of the delivery itself, with approximately 30%-40% of the entire cost of delivery being attributed to the human in the loop. Amazon is going after this with aerial drones, but there is an entire crop of new startups entering this space approaching this in a litany of different ways. It’s very early days of what I believe will be an exciting market.

For Amazon, they now get to kill two birds with one stone by going after the delivery margins and the bottleneck of efficiency at the cash register. Someone smarter than me (you know who you are) explained that there are more than 1.5m cashiers in the US alone, which seems ripe for automation given the advances in computer vision, deep learning, etc.

With the purchase of Whole Foods, it gives Amazon a new platform/distribution center to test their robots from and it gives them a scalable way to deploy their store of the future without investing in physical spaces, supply chains, and building a new brand from scratch. They are also probably banking on Whole Foods’ brand loyalty to get consumers to forgive them as they overcome the hurdles of rolling out their new store concept on a broader scale.

One forward looking point left to throw in here is that right now Amazon’s acquisition is leading them into a head-on collision with the consumer, but this doesn’t even begin to address what happens behind the scenes. One of these innovations currently happening is farms inside the stores. With startups like Robotany and Plenty.ag (formerly See Jane Farm) leading the charge here, combined with Amazon’s well known penchant for acquiring industrial robotics companies, this is another space worth watching if Amazon is serious about owning the entire stack.

Now that Amazon has fired another shot across the bow of traditional retail, it will be interesting to track who makes the next move. This consolidation isn’t over, but it will certainly be fun to watch.

Read the original post on Medium here.