Amazon made a huge splash this last week with its $13.7 billion all-cash acquisition of Whole Foods.
While Amazon has long been dabbling in food distribution and grocery sales, this acquisition is a huge statement of intent and a big strategic move for the e-commerce platform.
Perishable goods and heavy products are tough to distribute from centralized warehouses. Centralized distribution has been the centerpiece of Amazon’s marketplace growth strategy. “Pack and ship” products comprise a huge swath of consumer retail products, except for perishables like food and heavier products like furniture.
It’s not a coincidence that Walmart and Jet just purchased Wayfair, the furniture e-commerce site for $90 million a few months ago. The war for product marketplaces handling “pack and ship” items will continue, but we’re already a few innings into that game.
We’ve seen the destruction of bookstores, clothing retail, electronics stores and others that fit the centralized distribution model. Now, we are about to see the second wave – and food is just the beginning.
As we’ve previously written, B2B food distribution is a vulnerable target for Amazon Business. In the wake of Amazon’s Whole Foods acquisition, this timeline will now only be accelerated.
Many executives in the food distribution industry were doubtful of Amazon’s chances before this acquisition. Moving groceries and other perishables is a different game from the typical pack and ship items Amazon sells. In the industry’s view, Amazon didn’t have a supply chain designed to handle food distribution.
How quickly things have changed.
Now, other heavy distribution/retail industries really need to wake up: they are one multi-billion dollar acquisition away from having a $400+ billion gorilla in their backyard who’s ready to destroy their margins.
Food is a low-margin business – ask anyone who works in the food industry. What’ll happen to the hundreds of billions of dollars in the distribution of building materials, chemicals, electrical, and metals? Amazon is aggressively attacking B2B distribution and these verticals look like logical next steps.
Like food distribution, many of these other B2B industries required specialized logistics and distribution capabilities. But if Amazon wanted to do a full-court press, it could easily use another 3% of its market cap and acquire a key player in each of these “heavy” distribution businesses.
Given it’s rapidly expanding stock price, its growing cash pile and relatively low interest rates, Amazon’s Whole Foods acquisition could be just the beginning of its aggressive expansion into new industries.
For incumbents in these adjacent industries, the time to go on the offensive is now. If they wait until after Amazon makes a big move into your industry, it will likely be too late to fight back. Note the large, across-the-board stock price decline of every major grocery chain, including Walmart and Target, in the wake of this week’s big news.
The stakes for losing out to Amazon are far too high to not take seriously. And as the food distribution industry learned this week, Amazon can change an entire industry’s landscape in the blink of an eye.
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