Things haven’t been all sweetness and light for Amazon’s Whole Food acquisition as many had expected.
Neil Stern, writing for Forbes earlier in 2017, noted that the deal would instantly make Amazon a player in the food business. “Besides Whole Foods’ $15.6 billion in sales, Amazon has struggled to get Amazon Fresh to be a significant player in the retail food game,” he wrote. “Whole Foods is the most credible player in fresh foods in the industry. Branding an online fresh service with Whole Foods brand and perishables know-how could be a game changer.”
That hasn’t been the case. Amazon acquired a strong brand in Whole Foods, but got a company in the midst of a transition that’s having far-flung consequences throughout its operations and supply chain. In May, Whole Foods announced plans to cut costs by $300 million a year by 2020 through initiatives like store labor transformation, supply chain optimization, and accelerated order-to-shelf rollout.
Those changes have led to an epidemic of empty shelves, frustrated employees, and disappointed customers, according to a report from Business Insider. That report pins the blame for those problems on the transition to the order-to-shelf system, which has employees directly stock deliveries onto trucks, rather than putting goods in back storerooms. Lowering inventory, improving efficiency, and cutting costs are admirable from business operations perspective, but the results so far have led to a rash of shortages.
Simultaneously, Amazon lacks its own expertise in brick-and-mortar operations so it has little to draw on to help solve such problems at Whole Foods. Unlike Walmart or Kroger, it doesn’t have its own format it can stamp on to Whole Foods to recast it in its own image. While there have been some synergies between the two companies, such as adding Whole Foods 365 brand goods to Amazon’s website and stocking Amazon lockers inside Whole Foods, the attention on such moves seems to be overshadowing problems within Whole Foods itself.
But before you get too excited about having your asparagus juice and gluten-free pasta delivered lickety-split, the e-commerce giant said the grocery delivery service will debut in neighborhoods of Austin, Cincinnati, Dallas and Virginia Beach. If all goes well, it plans to expand it throughout the U.S. this year. Prime members will receive free two-hour delivery for orders of more than $35, while one-hour delivery is available for $7.99. Sounds pretty terrific from a consumer perspective. How such a program will be profitable is another story. Amazon still seems to focused on creating a large footprint above all, and such a program just might be what the industry and supply chain is looking for.
“We believe Amazon’s announcement earlier this morning that it is beginning same day delivery of grocery items in a few existing Prime Now markets is the beginning of the ‘unlocking’ of the real value of the Whole Foods acquisition,” said Moody’s lead retail analyst Charlie O’Shea in a statement. “In acquiring Whole Foods, Amazon gained a sorely needed brick-and-mortar partner with which to scale its food business, and provided the limited effort announced today is successful, we expect the entire Whole Foods network to ramp up for delivery in due course as well.”
Shoppers will be able to pick from thousands of Whole Food products for delivery. Prime members will have access to thousands of items, from produce, to meat, dairy, and even fresh flowers, but not every item will be available for Prime Now delivery. Stephanie Landry, vice president of Prime Now, Amazon Fresh, and Amazon Restaurants told USA Today that “we might not have every last item that could be available in your local store but we’re going to have the vast majority of them.”
Perhaps taking a page from Shipt, once a customer has placed an order, pickers—not necessarily Whole Foods employees—will collect the items from a nearby Whole Foods store and put them in “appropriate packaging.”
The orders will then be given to Amazon Flex delivery drivers—contract drivers who, similar to Uber, drive their own cars but use Amazon’s routing app to make deliveries. These drivers will also deliver items for Amazon, Prime Now, Amazon Fresh, and Amazon Restaurants. The service will generally be available while the stores are open, generally from 8 a.m. to 10 p.m.
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