Even before Amazon said it was buying Whole Foods, the grocery industry was scrambling to adapt to changing habits. Now the deal will likely quicken those efforts. Amazon's planned $13.7 billion acquisition of the organic and natural foods grocer signals a massive bet that people will opt more for the convenience of online orders and delivery or in-store pickup, putting even more pressure on the already competitive industry. Though online orders are estimated to account for just 1 percent to 2 percent of grocery sales, that figure is expected to grow. It's not yet clear what specific changes are in store at either Amazon or Whole Foods, since the two companies are saying little about their plans. But to stay prepare for the threat of the combined company, grocers will likely speed up plans to make their stores more appealing, leverage locations to offer delivery and do a better job of collecting shopper data. They may also need to seek innovative partners of their own.
Here's a look at the changes that are expected to accelerate:
*Grocery shopping is likely to get more sensory, as retailers try to make stores a draw beyond just picking up staples. Kroger Co., for instance, has touted the opening of Murray's cheese shops in some locations. Whole Foods, a leader in redefining the modern grocery experience, offers a "produce butcher" at a recently opened store in New York City. Prepared foods are another way grocers are increasingly making their stores a destination. Some chains have classical musicians play as shoppers wander from wine sections to sushi stations or meet friends for a bite. And in a nod to the popularity of delivery companies like Blue Apron, Kroger and Whole Foods have been testing meal kits as well.
*Major grocery retailers were already stepping up their efforts in delivery and in-store pickup of online orders. And Amazon's purchase of Whole Foods underscores the value of physical locations in offering such options. Many also say they will always want to do some of their grocery shopping in person to see what they're buying.
"All stores are not going away, it's just a matter of finding the store/online equilibrium," Credit Suisse analysts said in a note.
Maintaining the right balance will be critical. Walmart has about 4,700 U.S. locations, with plans to offer curbside grocery pickup at 1,100 by the end of this year. Kroger has nearly 2,800 stores that operate under a variety of names. Whole Foods' footprint is far smaller with about 440 locations, though those are mostly in urban and affluent neighborhoods where delivery might be more in demand.
To try to compete with Amazon -which has become a go-to destination online for a range of products- other chains may look outside themselves to build up their operations.
Walmart, which gets more than half its revenue from groceries, has been expanding with its acquisition of Jet.com last year and last week said it was buying online men's clothing seller Bonobos. Other deals could follow the Amazon-Whole Foods announcement, with Credit Suisse analysts saying that mergers represent "the path to survival."
*Amazon's wide-ranging data collection and sophisticated analysis helps it set prices and decide what offers to present to different customers. Whole Foods had been working to get better at data collection with the rollout of a loyalty program, and Amazon is expected to give those efforts a significant boost. Tracking shopper data to offer more targeted deals is seen as a critical advantage in the competitive grocery industry. Smaller regional players that don't have the resources to compete would be at a big disadvantage.
