Episode SummaryOn The Digital Life this week, we explore Amazon’s recent purchase of high-end grocery chain Whole Foods and how this transaction will impact the future of retail. For its $14 billion investment, Amazon gets, among other things, a strong real estate portfolio in areas of the US with wealthy, desirable demographics; sophisticated food industry logistics and warehousing; a host of purchasing relationships and agreements; and some potentially rich customer data.
It’s a little ironic that an e-commerce giant such Amazon now has an unique opportunity to redefine brick-and-mortar retail as well. But, the company has been experimenting in this space for a few years. Its Amazon Go offering, for instance, is a IoT-enabled grocery store which enables customers to forgo the checkout line. People can walk in, tap their mobile phones on a turnstile, grab what they like from the shelves, and just walk out again — no waiting in line required. We can imagine that Amazon’s retail technology might soon make an impact on its newly purchased grocery stores. Join us as we discuss the evolution of the retail and the consequences of the Amazon acquisition of Whole Foods.
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Why Amazon Bought Whole Foods
Jon:
Welcome to episode 212 of The Digital Life, a show about our insights into the future of design and technology. I’m your host, Jon Follett, and with me is Founder and Co-Host, Dirk Knemeyer.
Dirk:
Greetings listeners.
Jon:
For our podcast topic this week, we’re going to explore Amazon’s recent announcement that they’re going to purchase Whole Foods for about 14 billion dollars, and how this acquisition is going to impact the future of retail. There are all kinds of possible points of leverage that come from Amazon’s acquisition of Whole Foods and if you break down the Whole Foods business operation into some of its component parts, you can just see how valuable this is to Amazon. I’m going to start by highlighting some of these areas. Of course, other folks have talked about it but I think it’s interesting to first break down these segments and then analyze what Amazon can do with them in conjunction with all of their other services. To start off with, Whole Foods has real estate in areas with a high end demographic. I’ve seen it called the “yuppie grocery store,” right?
Dirk:
I thought hipster had replaced yuppie. Which case is that?
Jon:
Okay, I see. The hipster, the huppie.
Dirk:
The huppie.
Jon:
The huppie grocery store.
Dirk:
You’re a trendsetter, Jon.
Jon:
I am. When you’re at Whole Foods, I’ve also heard it called “whole wallet,” right?
Dirk:
“Whole paycheck” is the term I’m more familiar with.
Jon:
Right, so high end food stuffs for sure. Real estate in all of these various areas of the country where there’s a very important/profitable demographic.
Dirk:
Wealthy.
Jon:
For grocery and for retail generally. That’s something to be jealous of Amazon, if you’re another grocery retailer or an eCommerce retailer. All of a sudden, Amazon has this prized real estate which you can imagine maybe dozens of things Amazon could do with high end real estate. Number one, they could use warehousing and use these as distribution points for any of their Prime services. That’s just a starting point. Real estate, number one. Number two, a certain amount of logistics and warehousing. Now, Amazon has proven to be a master of logistics and warehousing, so I don’t know how much of Whole Foods logistics is going to help them out, except that the grocery business is very different from the kinds of things that Amazon has been good at.
Amazon has had the best luck with their grocery services, so they have Amazon Fresh which is kind of their groceries on demand, and then they have Amazon Pantry which is more of the stuff that you’d get at like a Costco and buy in bulk. The delivery time is not that important from Amazon Pantry because you’re getting things that are shelf stable.
Dirk:
And if there’s anything that’s been janky around the Amazon user experience in the past, it is groceries, it is exact these kind of products. Because even now with Amazon Pantry, it’s crappy compared to Amazon normal, where it’s one click, easy in, easy out. They have these boxes and percentages of boxes and it puts you in this weird psychological frame of feeling like you need to optimize. Like, it’s awful actually, and it’s a total departure from what makes Amazon otherwise wonderful, which is namely good price, push a couple buttons, the thing is coming and you feel good about it.
When I buy from Amazon Pantry, I never feel good about it, so Whole Foods is certainly coming into a slice of Amazon, that I think Amazon has executed poorly, and they’re a company that generally executes things pretty well.
Jon:
So, we talked about real estate, we talked about logistics and warehousing. The third item on my list that Amazon gets is not something I’ve seen a lot of analysis on yet, but it’s data, right? It’s data about these high end demographics. I don’t know the extent to how much information Whole Foods has on each individual customer, but rest assured any information that they have, Amazon is going to integrate into their chain of analysis and data breakdown. Whole Foods is going to know you much better as a whole person, or Whole Foods/Amazon. I think the data part of this might be under realized as an asset for Amazon because we’re talking about not just the data that they’ve got already at Whole Foods, but the data that they’re going to be getting from you as a result of this Amazon partnership.
For example, Amazon has a prototype, no cashier grocery story called “Amazon Go.” You essentially log into your Amazon Prime or whatever, scan when you enter the grocery store, and then all of a sudden, you’ve got a GPS tracking device plus retail tracking, plus it’s all attached to your Amazon Prime account, right? You’re walking around, imagine instead of Amazon Go, it’s Whole Foods Go, right?
Dirk:
Right.
Jon:
So all the goodies at Whole Foods, all of a sudden not only do you know what I’ve bought, I’ve bought some bananas and a soda, but you also know that I was standing in front of the cakes for a while and probably …
Dirk:
You love your cakes, Jon. You love it.
Jon:
Yeah, I want some cake, right? Retargeting, right? You know I was standing in front of the cakes, so I go back to the office. I was just out for lunch, I go out, come back, and then on the web ads are all of a sudden showing me that darn Whole Foods cake that I was standing in front of because it triggered some 15 second, I was in front of there for 15 seconds and they use iTracking or something, and all of a sudden there there’s cake that keeps showing up that gets retargeted to me. I don’t know.
Dirk:
Jon, it could be drone delivered in just 10 minutes.
Jon:
Yeah, dropped on my head.
Dirk:
Jon, did you further know that Jessica down three cubes from you, her birthday is this week. Why not have that cake drone shipped in and celebrate her birthday?
Jon:
Yeah, this is of course, getting a little silly, but you can …
Dirk:
Oh, I’m not being silly. I’m actually being dead stone serious, Jon.
Jon:
I’m being a little of both, but retargeting always creeps me out, right? I’m on one site and I’m looking at Hawaiian shirts or whatever, and then I go to another site and I get retargeted, right? Imagine retargeting following you into the physical world, à la Minority Report. Mr. Anderton or whatever his name was in the movie, this stuff.
Dirk:
Yeah, but that’s always been a question of when not if, right?
Jon:
I suppose so, but watching the when happen is pretty amazing.
Dirk:
Is it freaking you out, bro? Is it freaking you out?
Jon:
It only cost Amazon 14 billion dollars to invade everybody’s lives in a more significant way.
Dirk:
Well, speaking of Amazon and speaking of only, and speaking of billions, I saw a headline this weekend that said Jeff Bezos is only five billion dollars away from being the wealthiest person on earth. Now, only five billion dollars kind of blew my mind. It sounds like a lot of money to me, but I guess to good old Jeff it’s not.
Jon:
Yeah, I think once you’re in the 0.01%, then you start measuring things in billions instead of millions or in my case, $20 bills y’all. Those are the three so far, number three was data, and then the fourth thing, which is again, probably not being analyzed quite as much, is all of the purchasing relationships and long-term agreements that Whole Foods has in place. I can imagine that Whole Foods has a different set of relationships than Amazon’s grocery division would have. You’re talking about local food supply, you’re talking about organics, you’re talking about things that are not necessarily readily available to Amazon. Whether that increases their product offerings or if that’s just something that goes by the wayside, I don’t know.
Dirk:
It’s certainly something that’s harder to integrate, because the local Whole Foods stores, I don’t know the specifics of how it runs, but I superficially understand the structure, they have latitude to be purchasing small batch products in their local market from companies that aren’t able to scale. They wouldn’t be able to scale to Amazon, it becomes this global thing instead of this local thing. Amazon is, I don’t want to say strictly, but they’re global, whereas these Whole Foods, each location is for some proportion of it, hyper-local. The latticing of those together is a little funky. How that shakes out I’m not sure, but it’s definitely not a straight line to everybody in the world can now get Bob’s Delicious Pickles, or, “Fuck Bob’s Delicious Pickles. We’re just going to cut them off.”
Jon:
Yeah. It’s unclear and I do believe Whole Foods is going to be operating under its established brand, so a lot of these things are going to go on underneath the surface, but I don’t think it’s going to be necessarily readily apparent to us as these changes are made. Albeit, things like, of course, retargeting and physical space, you’ll notice that. I think this conversation about the future of commerce, I think we should bring in some of the other of the giant four tech companies that are really starting to dominate the conversation, at least here in the United States. You have Alphabet/Google, Apple, and Facebook. All of these companies …
Dirk:
And Amazon.
Jon:
And Amazon, of course, right. All of these companies have various divisions and they’re going head to head in any number of areas. I think it’s worth noting that Amazon is really ascendant based on their involvement with this combination of retail and the IoT connections that are nascent now, but are really going to become important in the next few years. I think Amazon has pushed into physical space ahead of everybody else. Now, Google of course has their Google Home and Nest and all their …
Dirk:
That’s niche. That’s just niche crap right now.
Jon:
But Amazon really, I mean Amazon really has a physical presence now, both on the technology side and now on the grocery store side.
Dirk:
Well, even beyond that. I mean there’s Dedham Mall which is in a suburb of Boston that I go to with my children, they recently put in an Amazon bookstore.
Jon:
That’s right.
Dirk:
No longer the Borders or the brands that we’re familiar with, now Amazon Books is the local brick and mortar. Dedham Mall also has a Whole Foods, so when we were there yesterday, in the reflection of this, the announcement of this deal, I noticed the fact that, what’s that’s going to look like?
Jon:
Yeah, that’s right. I mean, Apple of course has their physical space, their physical retail, but it’s funny, they’ve at least to me, it’s always seemed like a lovely showplace, a showcase really for their technology, but it’s less about going to the Apple Store to interact with Apple technology. Like, there’s nothing revolutionary when I go into the Apple Store. They have some niceties about the way they process you through there, but considering that they’re all about the experience, I would just expect there to be a little bit more coming out of Apple from their retail front. It really feels like, “Hey, the Apple store is, we’re just trying to get you to buy our hardware as quickly as possible.” There’s nothing beyond that.
As you pointed out on the show many times over the past couple of years, Apple as an innovator, they don’t feel like they’re keeping up. Amazon quite literally seems to be eating their lunch.
Dirk:
We said on the show five years ago, Apple was done. Apple had been passed, and was done, and they are, right? I mean, they’re going to exist as a big company making a ton of money for a long time still to come. There’s no question about that, but so is Exxon and a lot of other horrible, ugly, disinteresting companies. That’s the group that Apple now lives with, that’s their peer group. They don’t belong in the conversation with Google and Amazon and Facebook, which are the next generation companies. Apple is visionless, and the choices, the progress made by Amazon is just another example of Apple being left far, far behind.
Jon:
Do you think there’s a third act? Apple’s second act was game changing for technology and the way we use it, no question. Their first act was pretty substantial in terms of shaping the way computing happened in the ’80s and early ’90s. The personal computing revolution, they’ve either influenced or guided or changed it in significant ways for 20 to 30 years. Does Apple have a third act? I guess we can only speculate right now, but it feels like to have such a significant player drop off, I mean, maybe that’s just what happens to companies after a while. I mean, it certainly happened to Microsoft, although they’re trying to have their own second or third act.
Dirk:
Yeah. Apple will try to have more acts, and who knows? I mean, maybe they’ll shoot the moon and get really lucky and have something impressive, but look, the fact is Apple was created as a personal computing company. Apple’s success is all hit in the realm of personal computing, all of them. Personal computing is in the rear view mirror now. Personal computing in the future is existing in a broader ecosystem, an ecosystem that includes things we talk about on the show all the time, like driverless cars, drone delivery, spaceships, things way beyond a little thing that you hold in your hand, or that sits on the desk in front of you. It’s these integrated, complex environments.
Apple is nowhere on that stuff. It’s, again, it’s the Google and Facebook and Amazon that are the ones that are doing interesting things down these paths. I mean, these directions. Some other companies as well. We focus a lot on those three because they’re the internet natives, the giant internet successes that are blasting into emerging technologies far beyond the network, but look, look at the companies of Elon Musk as an example, right? The space that he is carving out is also heading into that sort of next generation, bigger picture, environmental, system level thinking of solving the problems of the future. Apple’s just a relic of the past. I think that’s it.
Jon:
Yeah. I’ll be watching this Amazon plus Whole Foods purchase, and integration very closely, since I think it’s going to make Amazon that much more powerful a competitor. Really, I saw some smart analysis on The Atlantic website, just talking about how Amazon is the 21st century equivalent in some ways of how Sears, right? How Sears started. They started as a catalog company, so the equivalent of mail order which is more or less where Amazon began, the digital equivalent, and then Sears moved into the retail space as it became apparent that those spaces were important and people moved to cities, and needed those spaces. I thought that was an interesting analysis. We’ll put the link to that Atlantic article up with the show notes, so listeners can check it out.
Listeners, remember that while you’re listening to the show you can follow along with the things that we’re mentioning here in real time. Just head over to TheDigitaLife.com, that’s just one L in TheDigitaLife, and go to the page for this episode. We’ve included links to pretty much everything mentioned by everybody so it’s a rich information resource to take advantage of while you’re listening. Or, afterward if you’re trying to remember something that you liked. You can find The Digital Life on iTunes, SoundCloud, Stitcher, Player FM, and Google Play. And, if you want to follow us outside of the show you can follow me on Twitter, @JonFollett. That’s J-o-n-F-o-l-l-e-t-t. And, of course the whole show is brought to you by Involution Studios which you can check out at GoInvo.com. That’s G-o-I-n-v-o.com. Dirk?
Dirk You can follow me on Twitter, @DKnemeyer. That’s @D-K-n-e-m-e-y-e-r, and thanks so much for listening.
Jon:
That’s it for episode 212 of The Digital Life. For Dirk Knemeyer, I’m Jon Follett and we’ll see you next time.
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