Pardon me if I am not excited about Amazon.com’s June announcement that it plans to purchase Whole Foods Market. While some people, both inside and outside of trucking, are predicting it will be a game-changer after it closes sometime in the second half of this year, it may not be as big of a deal for trucking as they think.
For starters, Whole Foods captured just 1.7% of the $750 billion grocery market last year. In contrast, Walmart has the largest slice at 17.3%. When you consider that Walmart and seven other companies have a combined market share of nearly half of the U.S. market, it’s easy to see that Amazon is getting only a small slice of the nation’s grocery pie.
Second, while Amazon is no doubt king of online sales, it has little experience running brick and mortar stores. With its purchase of Whole Foods, it gets more than 460 of them, and 87,000 additional employees. Only recently has Amazon branched out from its online confines, opening just a few dozen small “pop up” stores in malls to showcase its electronics devices, plus less than a dozen bookstores.
Third, while experts have speculated that the deal will be a big boost for the grocery delivery market (helping Amazon broaden its fledgling AmazonFresh and Amazon Go grocery offerings), the fact is that delivering groceries, especially perishables, isn’t the same as delivering books and music.
Amazon.com got its start delivering these items to customers and then branched out to most any kind of item you could need (and many you don’t.) But these items don’t go bad if it takes a while for them to get delivered. Perishable items are another matter. Most of the perishable items Amazon currently offers are fulfilled by third-party retailers. In other words, they leave it to someone else to do the worrying.
If Amazon really wants to convince people to rely on getting fresh fruits, vegetables and other perishable items online, rather than going to grocery stores, they have even bigger obstacles.
One is last mile delivery. Let’s face it, the big boys like UPS and FedEx struggle enough around Christmas to get things delivered on time. A sudden influx of groceries into their systems from Amazon/Whole Foods would either bog them down or be cost prohibitive for many customers, at least in the short term.
Then there is a bigger issue of inbound fresh production transportation and logistics. As outlined in a webinar hosted by the investment firm, Stifel, Nicolaus & Co., large, publicly traded and privately owned truckload carriers tend to shy away from the produce market due to its volatility. Getting fresh produce from the field to distribution centers is often handled by small fleets and independents who push hours of service rules to make their deliveries on time. With the coming electronic logging device mandate that will be much harder to do.
Amazon is no doubt taking a gamble in purchasing Whole Foods and has many other things to deal with in this acquisition, but when you’re Amazon CEO Jeff Bezos, you can afford to take such a risk.
The easiest money for Amazon may be not to tinker much with Whole Foods, but instead enjoy its profits, which totaled $507 million last year. The longshot gamble is a grocery revolution. But I’m not betting on it.