Amazon’s recent acquisition of Wholefoods signals a huge shift in the way food and beverages are purchased. We look at what impact this will have on the F&B industry and the pros of an increasingly digitised supply chain.
When it was announced that Amazon would buy Whole Foods for $13.7bn (£10.7bn) A deal that marks the online retail giant’s biggest push into traditional retailing yet, experts were quick to comment that it represented a seismic shift in the way the food and beverage industry operates, potentially damaging the high street retailer.
What changes are happening in the industry?
Amazon is clearly preparing to expand its e-commerce offer, and food and beverage brands have been increasingly looking for new channels to sell into for some time now.
The online retailer is to be successful, it will need to take heed of other trends currently impacting the F&B industry – such as a growing preference for recyclable packaging that’s made with renewable materials, food items that are additive- and preservative-free, and the so-called ‘snackification’ of beverages – where drinks act as meal replacements and guilt-free snacks.
Why is this good move for Amazon?
Amazon has always been interested in using technology to make shopping more efficient, and this venture offers it, the opportunity to disrupt the traditional supermarket sales model. Following the announcement by Amazon, Whole Foods stock soared 29% while the online retailer’s shares closed up 2.4%. In contrast, Target and Walmart saw their shares drop, with Amazon entering this market space.
Why is this good for food and drink brands?
Amazon’s purchase could even the playing field for food and drink businesses, making it possible for smaller, innovative brands to compete with bigger, established brands. It also increases the exposure of brands that were not previously available to buy online by providing a new sales channel.
Customers also stand to benefit from the move thanks to Amazon’s reputation for data mining. By capturing customers’ purchase history, the site’s algorithms can suggest new products and identify key trends shaping people’s buying habits.
Not only that, these insights could see Amazon completely refashion grocery stores – from how they are laid out to what products are offered and how shoppers gather their purchases. And in terms of online retail – the supply chain and distribution network for F&B brands will expand and improve.
In addition, entering the e-commerce space – where customers can easily comparison shop online – means brands no longer have to fight for shelf-space in the same way they would have to in a brick-and-mortar store.
What drawbacks are there for food and drink brands?
Food and drink brands can’t afford to be complacent. With e-commerce comes a loss of product tangibility for consumers who might be reluctant to step out of their comfort zone and try new brands if they can’t physically pick-up the product before purchasing it.
Amazon, already has a number of its own brands, and could start to dominate shopping carts if it expands its existing range of products. This means the deal could slice into profits for food manufacturers and supermarket chains, and potentially create challenges for companies that already deliver groceries and ready-to-cook ingredients and recipes to customers’ doors.
And, even if small, independent companies secure a contract with Amazon and Wholefoods, longer payment terms might mean they start to feel the pinch of a reduced cashflow and longer payment terms.
However, all these factors will force F&B brands, brick-and-mortar grocery stores and online grocery delivery services everywhere to continually innovate, which again is a positive thing for consumers.
Rather than seeing the acquisition as a threatening consolidation of power, SMEs and start-ups operating in the F&B space should view this rapidly changing industry as an opportunity as opposed to a threat, and look for new ways to set themselves apart from the competition.
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