Dive Brief:
- Amazon wants to use Whole Foods stores to fulfill online orders of best-selling non-food items in addition to groceries through its Prime Now delivery program, according to Bloomberg, which cited unnamed sources. In the backrooms of some Southern California Whole Foods stores, Amazon has already started stocking hot-selling online products.
- To accommodate this new initiative, Amazon is scouting Whole Foods stores up to twice the average size, with the intention of using significant floor space for online fulfillment. Amazon is also in talks with one of its biggest landlords, Regency Centers, to repurpose parking areas into staging areas for the company’s delivery fleet. A representative from Regency confirmed to Bloomberg that Amazon had made this request in areas with heavy concentrations of Prime members.
- Utilizing Whole Foods stores for a range of goods will help Amazon speed up delivery and rely less on carriers like UPS and FedEx. Currently, Whole Foods offers Prime Now delivery from stores in six cities.
Dive Insight:
In Amazon’s eyes, Whole Foods is not just a supermarket chain but a network of 470 delivery hubs for groceries as well as electronics, home goods and other fast-selling non-food items.
Analysts cited this as a key reason for Amazon’s acquisition of the struggling grocer last year, and this report indicates they were right. It’s also another reminder that Amazon is not just focused on rehabilitating Whole Foods, but on using the grocer to benefit its broader platform.
The new online fulfillment plan makes a lot of sense. Non-food items like electronics and apparel have higher margins than groceries. And by putting them in Whole Foods stores, it gets those products closer to the consumer. Overall, the plan should boost the speed and assortment of Amazon’s Prime Now program, and probably bring down prices, too.
Amazon’s closest competitors are seeking to similarly leverage their stores. Walmart, Bloomberg notes, is testing ways to better utilize its stores for online fulfillment and customer pickup. Target, meanwhile, is using its large stores as delivery centers for its new two-day delivery program. The company’s stores will also fill same-day deliveries through Shipt and click-and-collect orders through its Drive Up program.
Will Whole Foods stores eventually sell big-screen TVs and panini makers? Not likely, though Amazon will probably continue pushing Echo Dots, Kindle devices and other core products that also tie in with the grocery experience. With voice ordering becoming more widely adopted by grocery consumers, Amazon wants Alexa in more people’s homes.
In recent months, Whole Foods’ assortment has changed to favor more mainstream natural and organic products, according to Barclays analysts. The company’s internal operations have also been centralized, and fees have been added for suppliers — moves that predate Amazon’s acquisition of the grocer. Still, the two corporate cultures have clashed, most recently over product standards, according to reports, spurring more than a dozen Whole Foods executives to leave the company, The Wall Street Journal reported.
Stocking more non-food products — even if they are for online fulfillment only — could deepen the divide between the all-natural grocer and the efficiency-driven online retailer. If the move dramatically improves sales, though, both sides will probably be happy.
