Amazon’s Assault on Brick and Mortar Retail Begins Aug. 28

NEWS ANALYSIS: The acquisition of Whole Foods has been approved by stockholders and the feds, so the deal will close on Aug. 28, immediately launching integration with Amazon.

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Amazon’s acquisition of Whole Foods Market will formally close on Monday, Aug. 28, at which point the e-commerce giant will begin integrating the grocery chain into its own image. According to identical press releases from Amazon and Whole Foods, the first actions will be to drop the price on many items in the store, including some of its best-known organic products.

"We're determined to make healthy and organic food affordable for everyone. Everybody should be able to eat Whole Foods Market quality—we will lower prices without compromising Whole Foods Market's long-held commitment to the highest standards," said Jeff Wilke, CEO of Amazon Worldwide Consumer, in his prepared statement. "To get started, we're going to lower prices beginning Monday on a selection of best-selling grocery staples, including Whole Trade organic bananas, responsibly-farmed salmon, organic large brown eggs, animal-welfare-rated 85 percent lean ground beef, and more."

Lowering prices is just the first step in Amazon's quest to fundamentally transform retail. The company also plans to start selling Whole Foods private branded products through ecommerce channels, including AmazonFresh, Prime Pantry and Prime Now as well as through the normal amazon.com site. Some Whole Foods stores will get Amazon Lockers, which will allow Amazon customers to pick up and return products at those stores.

Amazon Prime: The Rewards Program for Whole Foods

In a move that may be more disruptive, Amazon Prime will become the customer rewards program for Whole Foods. There's a fair amount of systems integration work that needs to be accomplished before Amazon Prime members can start getting discounts at those grocery stores, however, and no date has been provided for that to be completed.

The announcement also implies some other unannounced changes coming for Whole Foods. For example, the inclusion of Whole Foods items in AmazonFresh and Prime Now would require distribution to take place from the stores themselves, which would effectively turn them into distribution centers, at least to a limited extent.

Once those Whole Foods Market stores start to play a role in Amazon's immediate delivery logistics, there's no reason to think that other items won't be added. Effectively, you could start seeing fresh meat and fish, fresh fruits and vegetables being distributed alongside flash drives and phone chargers from the same stores.

Those Whole Foods stores will effectively add hundreds of new distribution points for Amazon and in some cases those stores could grow their storage facilities to support the larger Amazon mission. And that mission goes a lot farther than just selling groceries, meaning that those Whole Foods stores could also be housing books and CDs, Echo devices and office supplies. The real role of those stores will be their place in the Amazon logistics plan.

Whole Foods Just Part of an Overall Marketing, Distribution Plan

It's important to remember that there's a lot more to Amazon's plan for Whole Foods than just baby kale and organic avocados. Amazon is using Whole Foods as its foray into transforming the way we shop for the one thing we buy most often—food. Right now, making fresh food a part of ecommerce has met with limited success.

But that's not the future that Amazon sees. At Amazon, getting fresh food to customers is just another logistics challenge, and the major impediment is getting customers used to buying their food without seeing it first, without touching it or smelling it. For some items, this may not be a big leap, but how many people will be willing to buy tomatoes or rib-eye steaks sight-unseen remains to be, well, seen.

This is one area where the size of Whole Foods may become a problem. Whole Foods has approximately 465 stores, including those in Canada and the UK. Walmart has 4,600 stores in the U.S.. With 10 times as many locations where customers can pick up products, or from which products can be delivered, Walmart has a decided advantage in its battle to beat Amazon.

More to the point, Walmart has joined with Google to dramatically increase its ecommerce capabilities and to add voice-based buying. Walmart has also eliminated its membership fees and is promising two- or three-day shipping along with in-store pickup for many items. In fact, Walmart has even begun installing those pickup lockers similar to those used by Amazon in its stores.

Can an e-Commerce Company Integrate Physical Stores?

What we're seeing here is whether an e-commerce company can integrate physical stores effectively or whether it works better when a company with physical stores integrates e-commerce. While Amazon gets all of the attention, it would be a mistake to discount Walmart's ability to compete in this arena, especially when it has Google as its partner.

Both Amazon and Walmart are leaders in logistics, and while they approach the movement of products differently, both companies are very good at it. Amazon will have to find ways to incorporate the Whole Foods traditional grocery distribution into something it can live with. Walmart will have to find ways to incorporate Google's search, AI and language processing skills into traditional retail.

Both companies have some really hard problems to solve as they circle each other in preparation for the battle to come. It’s unclear which company will come out on top at this point, and it may be years before there's an answer—if ever. In the meantime, the one group that will come out as a clear winner will be their customers who will find themselves with lower prices, better availability and selection, and ultimately less wasted time.

Wayne Rash

Wayne Rash

Wayne Rash is a freelance writer and editor with a 35 year history covering technology. He’s a frequent speaker on business, technology issues and enterprise computing. He covers Washington and...