Amazon acquisition of Whole Foods adds 'locally relevant face to the Amazon machine'

Online beverages sales have been increasing according to Amazon's Q1 2017 financial report. ©iStock/jahcottontail143

Amazon’s purchase of Whole Foods Market for $13.7bn will enhance the beverage shopping experience, which depends on a multichannel approach to succeed, according to Charlie Cain executive partner of Building Oz in Seattle.

The acquisition is a mutually beneficial move particularly for Amazon who will be able to take advantage of the specialty grocery store chain’s positive brand equity, Cain said.

Cain was recruited by Starbucks in 2011 to lead retail operations for the company’s $1.4bn Tazo tea brand where he helped rebrand and re-launch Tazo into Starbucks retail, foodservice, CPG, and e-commerce channels. Cain also led retail innovation and international franchise operations for the brand until 2015 when he started the brand consultancy firm Building Oz.

“Whole Foods adds a locally relevant ‘face’ to the Amazon machine,” Cain told BeverageDaily. “It provides them with tremendous credibility and brand equity.”

Amazon will also benefit from Whole Food’s regionally customized supply chain with hundreds of points of distribution, giving them quick access to desirable and lucrative local markets, Cain said.

"This partnership is the first real threat to America’s dominant grocery chains."

The deal is expected to close in the second half of 2017.

Beverage category performance on Amazon

Amazon has provided solid ground for beverage sales according to its Q1 2017 financial report. The top-selling products of Amazon Pantry (its dedicated service to non-perishable grocery items) were energy drinks and carbonated beverages.

Coffee and tea took the third and fourth spots among grocery sales; wine and juice also fell within the top ten top-selling products.

E-commerce must be complementary not primary

While e-commerce has proved successful for the beverage category, an in-store shopping experience is still crucial to its sales.

The merging of Whole Foods’ in-store brand equity and Amazon’s e-commerce expertise will align well for beverage sales, according to Cain.

“E-commerce should be a complementary versus a primary channel,” Cain said at the World Tea Expo last week. “The strongest online brands regularly lose out to multichannel brands.”

In addition, there is an industry-wide consumer expectation for fast and free shipping that Amazon has been providing for a number of years. However, an in-store customer relationship (something Whole Foods has honed) is crucial to driving online sales as well, Cain emphasized.

Starbucks for example has gained incremental sales through its mobile and digital services, but it is their “high-touch” environments like Starbucks Roasteries and Reserves Stores that have built a deep consumer relationship with the brand, Cain explained.  

“You can do so much online, but at the end of the day it’s really hard to compete long term without a meaningful relationship with the customer,” he added.

Beverage industry perspective

Founder of Role Tea, Mike Johnson, recently gained placement on Whole Foods store shelves in the DC metro area and says he is encouraged by the deal as long as Whole Foods remains committed to young, growing CPG brands.

“Ultimately, every young, growing brand's primary challenge is distribution and getting to as many consumers as possible,” Johnson said.

“Theoretically with Amazon's distribution and e-commerce expertise, it should provide suppliers of Whole Foods more avenues to reach their customers beyond just the aisles.”

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