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Jul 20, 2017
Business Insider: Cites Fabletics Strategy in Amazon/WholeFoods Analysis
Whole Foods is saving Amazon — not the other way around
By Gina Ashe, Contributor, Business Insider
The dust has barely settled from the recent announcement that Amazon will buy Whole Foods Market for $13.4 billion later on this year, but the reigning sentiments seem clear: Amazon saved the declining grocery store and, in doing, boosted its own value proposition.
“In short, Whole Foods was in a free fall, and Amazon is the perfect net to catch it,” Derek Thompson wrote for The Atlantic. And while Thompson and others nod to what Amazon is gaining—distribution centers and Whole Foods’ high-income, tech-savvy customers, to name a couple—there’s a lot more at stake than what meets the eye.
Amazon’s bread and butter is e-commerce and, while they own 43% of that market, that’s a just a sliver of the retail industry. Over 90% of purchases happen in physical stores. With its purchase of Whole Foods, Amazon is not only investing in brick-and-mortar but also securing a spot in the $750 billion grocery market—and the perks that come with it.
To date, online retail’s advantage has been the wealth of consumer data it can gather without disrupting the shopping experience. But online data doesn’t necessarily translate to the storefront. Case in point: Amazon’s own brick-and-mortar version of its online bookstore, Amazon Books. The company’s 7 locations are organized based on how consumers browse online, but visitors described the store experience as “not built for people who actually read,” indicating that consumers shop differently online than they do in physical stores.
The types of data collected online doesn’t necessarily translate in-store. And as technology makes frictionless data-gathering possible in stores, it seems the real consumer insight gems come from brick-and-mortar data.
That’s been the experience of Fabletics, Kate Hudson’s discount athleisure brand, which recently opened 18 brick-and-mortar locations to track the success of everything from store layouts to consumer responses to individual products. While the company was swimming in data online, the in-store insights have proven more valuable: Overall, the company’s success is higher in markets where it has a physical presence than markets served online-only.
“We needed better, more contextual data—this is the reason we decided to open stores,” Fabletics President and General Manager Gregg Throgmartin told Retail Dive.
With the physical data from Whole Foods, Amazon can better implement strategies to address in-store trends directly. Moreover, by combining online and physical data, the company can move towards developing a cohesive digital strategy that marries physical and online experiences.
A Retail Foothold
Amazon is getting a lot of bang out of their $13.4 billion beyond the data. With Whole Foods’ 400 stores, Amazon will have a physical presence in all but 8 states in the U.S. And while some have hypothesized Amazon will turn Whole Foods into distribution centers for a grocery-delivery service, that seems an unlikely future considering 58% of consumers report they’re more likely to shop in-stores than online for household essentials, including groceries.
To get into the grocery business, then, Amazon needs stores: and they’ve just purchased an out-of-the-box brick-and-mortar setup. Whole Foods has an existing network of product distributors and brand partnerships, and the stores are already optimized locally thanks to individualized buyers that choose assortments based on regional preferences.
Another part of the Whole Foods package is its trained workforce, many of whom view working at Whole Foods as a long-term career path—an anomaly in an industry with high turnover rates. Having this workforce trained and invested in their roles means good things for sales. According to a recent ThirdChannel study, educated employees can increase sales 60%. And 90% of consumers report being somewhat or extremely likely to make a purchase with assistance from a knowledgeable associate. Having these individuals already in place will continue to drive sales for Amazon.
The Whole Foods experience
One of the main reasons consumers visit retail stores (62%) is to touch and try products, according to a survey from Retail Dive—a trend that’s especially true for grocery products, namely produce. Not to mention that the rising consumer generation, Millennials and Gen Z, value physical stores despite their familiarity with online shopping. What makes or breaks a retailer, then, isn’t competition online: it’s the quality of their experience. No matter how advanced the marketplace UX, online retailers can’t bring their brands or products to life as meaningfully as an in-person encounter.
“When you get into the brick-and-mortar space, you want to be a destination that offers an experience that people want to come to,” Alicia Hare, a former top executive at Target, told the San Francisco Chronicle. “Whole Foods has historically done that very well.”
The company prioritizes exclusive partnerships with small natural-foods companies of interest to its shoppers, and has an large, popular prepared-foods section in many of its stores. In recent years, they’ve even made a commitment to offering more price reductions and promotions.
The experience doesn’t just draw consumers in—it sells. According to ThirdChannel data from a study of a health and wellness brand, tactics like in-store demos drove 46% lift in sales. And the biggest selling point, according to a survey of sales agents selling the products during these demos, wasn’t price. Instead, a majority of agents reported passion from the individual selling the product was the highest sales driver. No matter how much marketing material a brand puts out around a product, a store associate that communicates a genuine energy to the consumer will leave a stronger emotional impression—and that’s what tips the scales for the sale.
Amazon has reigned online. But in order for the company to continue to dominate in the retail industry, they must make a strong move towards brick-and-mortar. This partnership may save Whole Foods from its short-term financial troubles, but the grocery titan is a major asset for Amazon in the long run.