Comment: What procurement should expect from the Amazon-Whole Foods deal?

When Amazon announced its purchase of Whole Foods last month, grocers and retailers immediately began to wonder about the impact the integration would have on their industries.

Amazon has been considered a threat to traditional retail for a long time now, and its new physical presence adds to the competitive dynamic -- not only will the acquisition cause a major shift in how brick-and-mortar grocery stores operate, but it is also bound to impact the way grocery and retail procurement teams and supply chains function.

Anticipated changes: What’s in store for retail?

Although it is still too early to definitively say what this major acquisition will hold, retailers should keep an eye on the following changes, and be prepared to tackle them with well-thought-out supply chain strategies.

Transformation of delivery networks

With new access to a multitude of physical stores and distribution centres -- equipped with refrigerators and freezers specifically designed to keep perishable food fresh -- Amazon will likely bolster existing grocery delivery and pick-up services. Amazon Fresh currently allows customers to order groceries online and either pick them up at an Amazon location or have the order delivered directly to their door, but consumer concern of Amazon’s ability to deliver perishables was one reason the service didn’t take off as quickly as expected.

In addition, Amazon recently filed for a trademark for a service described as, “We do the prep. You be the chef,” which indicates Amazon may begin competing with prepared meal kit providers like Blue Apron. As these types of services become more widely available and gain popularity among consumers, other retailers are likely to follow suit and offer similar online ordering systems to keep up with demand.

Consumer expectations to receive orders almost immediately are also likely to increase, requiring retailers to develop new methods for delivering high-quality products in little time. For Amazon, the increased distribution centres will help make this a reality, in addition to its previous investments in drone technology, plane leasing and ocean freight booking. Other grocery retailers will need to follow suit and invest in streamlining distribution if they want to compete.

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Lower prices for retailers and end customers

Whole Foods has thrived as a high-end grocery retailer, capitalising early on the market for organic, natural food options. On the other hand, it also has gained a “whole paycheck” reputation due to its high prices. This can be attributed to the fact it sources from smaller, locally owned stores, and carries more options per product line. It’s a costly business model that requires passing on additional cost to consumers to remain profitable.

Many grocery stores have caught up to the Whole Foods appeal by offering more affordable, natural product lines. Stop and Shop’s Nature’s Promise, for example, directly competes with 365 by Whole Foods. However, with the Amazon deal, there’s new concern for retailers: with Amazon’s ownership comes access to relationships with larger suppliers, more purchasing power and superior inventory technologies and distribution tactics. The result: Whole Foods may be able to pass along additional savings to the consumer through backend operational efficiencies – positioning their products as a brand of choice for both quality and price. To stay competitive, other retailers will need to source more effectively and strategically to cut costs.

Additional investment in procurement technology

Amazon has already proved to be a pioneer in the retail technology space with Amazon Prime and most recently, with grocery services like Amazon Go and AmazonFresh. With the added pressure this acquisition will put on retailers to stay competitive, they will need to follow Amazon’s lead and invest in procurement and digital technologies that not only streamline their processes, but improve the shopping experience for consumers.

It is possible we will see a spike in grocery stores offering AI-enabled online ordering and household item replenishment, with the simple push of a button. This type of technology will benefit supply chain and procurement teams, making their lives easier with more automation and driving the industry towards greater innovation and digitization.

Additional investments in the continued transformation of inventory and supply chain management are also likely. For example, the use of IoT enabled tracking and logistics, including smart containers and drone technology will improve inventory control and increase supply chain efficiency across the industry.

We can’t say for sure what the Amazon-Whole Foods deal means for procurement and supply chain teams until the deal is goes through, and ultimately, changes start to roll out, but the acquisition is bound to spark more innovation and evolution from grocers and procurement teams fighting to stay competitive and relevant.