Amazon announced, on Friday, June 16, that it acquired Whole Foods, a traditional physical retailer in the United States. The transaction worth US$13,7 billion immediately shook the brick-and-mortar sector, sending shares of the country's main supermarket chains down about 6%.
This unforeseen movement could further intensify competition in the “red sea” in the physical retail sector. The entry of Amazon, known for its low-cost culture, is expected to bring product prices to ever-lower levels, directly competing with the “everyday low price” policy imposed by Walmart. Both companies are known to operate on low margins – according to Yahoo Finance, Amazon's operating margin is 2,89% while Walmart's is 4,36%. With this fiercer competition, small chains will suffer even more in trying to remain competitive in this scenario.
Despite the unexpected acquisition, this wasn't Amazon's first move into brick-and-mortar retail. As mentioned in the article Will your job exist ten years from now? think again, Amazon Go is a project already underway in the United States, which uses technology to replace ATMs in physical stores with sensors, thus eliminating the need for people to charge for purchases. Amazon could, therefore, apply this and other technologies in the Whole Foods chain, making the operation of physical stores less costly. Another important point of synergy is the vast know-how that Amazon has, which will certainly increase the efficiency of Whole Foods' logistics operation. Another important point is the capillarity that the hundreds of Whole Foods physical stores have, which would give Amazon the possibility to further improve its level of online shopping service.
The competition between Amazon and Walmart will not only occur in the field of physical stores, with the entry of the e-commerce in the sector. Last year, Walmart bought for 3 billion dollars the jet.com, demonstrating its intention to compete in digital retail as well. It looks like this clash between Amazon and Walmart is just getting started. The dispute between the two companies will be a constant subject in the corporate environment.
References:
http://edition.cnn.com/2017/06/17/opinions/amazons-waterloo-spicer/index.html
https://www.reuters.com/article/us-whole-foods-m-a-amazon-com-walmart-idUSKBN1990HH
Henry Alvarenga
He has been working in consultancy for 7 years, with experience in more than 20 Demand Planning and S&OP projects, Logistics Network Design, Logistics Master Plan, Inventory Policies, Operations Strategy and Market Intelligence
