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Amazon buys Whole Foods. Now what? The story behind the story

In a move that surprised many, Amazon announced its intention on June 16 to purchase Whole Foods for $13.7bn in cash. In the wake of the announcement, commentators are abuzz with the ‘why’s, what’s and could-be’s’ behind Amazon’s move.

Amazon had been dabbling with traditional brick-and-mortar activities for a few years already – from owning a few physical stores to running experiments like “Amazon Fresh” and “Amazon Go”.

When the news broke critics saw it as a sign that the company had finally caved and made a large investment into physical stores in order to grow. What many didn’t see, however, is that this acquisition is, in fact, in complete alignment with Amazon’s view of the world of retail.  

According to a recent survey of chief data executives, 47% of them believe that their firms are at risk of major disruption in the next decade. That disruption will most likely come from data. And Amazon is using data to reverse-engineer retail in a way that might change it forever.  

The firm’s move marks the beginning of the end of retail as we’ve known it. Or maybe the beginning of the retail industry, as it should be. How does this relate to the disruptions coming to your industry?

Data: No longer a four-letter word

Retail is a ruthless business. It has incredible uncertainty and risk built-in. Groceries can go bad in unpredictable ways. The sale of accessories can be affected by unexpected fashion trends and unforeseen weather patterns.  

To succeed, retailers have to compete on many fronts: they have to invest in the right location. They need to carry the right inventory at the right time.  They have to operate with exceptional excellence and provide supreme convenience to extract razor-thin margins.  

Historically, this industry took a while to adopt technology and data to disrupt itself.  It wasn’t until the 1970s, when point-of-sale systems were introduced to replace the very limited electronic cash registers, that retailers could start tracking transactions, and tie them to orders and buyers in order to start managing inventory with more certainty.

In contrast, Amazon has approached the problem of retail in a more scientific way since day 1.  In the Amazon world, every transaction is recorded, every buyer is known, every inventory movement is known, and perhaps more importantly, every possible next order can be suggested based on what visitors buy and browse.

This playbook, based on the belief that all data must be collected, analyzed and used, is drastically different from retail’s traditional way of thinking.  

Amazon’s move is a pretty clever one if you think about the luxury it will give the online company to reinvent and reengineer the process of buying, moving and selling goods: Whole Foods has higher margins than Amazon’s retail business (5% vs. 3%), and with 460 locations and a history of highly localised habits, Amazon will benefit from a trove of Data that it can mine to write the future…..

Forbes: Read the full article

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Related reading:

What Amazon is really after in its Whole Foods acquisition: The Amazon-Whole Foods marriage means Amazon, using its sales data, can curate what Whole Foods sells….

Amazon is about to transform how you buy groceries: Amazon has been trying to crack the food delivery business for a decade. Today it may have finally figured out how: Buy a supermarket.

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