Opinion

The Amazon Acquisition of Whole Foods Is Huge…for 2% of America

High-end grocer Whole Foods is affectionately known as “Whole Paycheck,” even to those of us who regularly frequent the chain. Yet, I have seen a lot of pontificating on how Amazon buying Whole Foods could somehow be a bad thing.

Put simply, the class of professional worriers is worried the combination of Amazon and Whole Foods will create a juggernaut that will wipe out grocery competitors across America.

Looking at my credit card statements, I get that. I spend a somewhat disturbing amount of money at these two places each month, and those who are concerned about the acquisition likely have similar experiences.

The problem is our underlying assumption that most Americans are actually like us. Despite the fact all our friends and neighbors share our love for Whole Foods and Amazon, we represent only a tiny fraction of America.

In fact, Whole Foods has just over 1 percent of the total U.S. grocery market. It has only 450 stores, the vast majority of which are crammed into just nine states. Contrast that with the fact that 90 percent of Americans live within 10 miles of one of Walmart’s 4,600 stores. Indeed, Walmart controls almost 18 percent of the U.S. grocery market and is by far the largest grocery retailer in the country. The next closest competitor to Walmart — Kroger — has about 9 percent market share.

Amazon has just one grocery store, and including its grocery delivery service, Amazon Fresh, it owns less than 0.2 percent of the grocery market.

Combined, Amazon and Whole Foods would have a whopping 1.4 percent of the American grocery market. Moreover, despite the hyperbole around Amazon’s growing influence in e-commerce, online retail still represents less than 10 percent of all retail.

Once we get past our own distorted sense of reality, there isn’t much of a concern that Amazon or internet retailers will monopolize or undermine grocery distribution in America. This is especially true as European grocery giants like Aldi and Lidl continue their expansions into the U.S. market.

In fact, we should welcome the competition that internet and omni-channel retailers will bring to the entire grocery market.

The preference for anywhere, anytime shopping from digitally engaged consumers is already forcing grocers to rethink the shopping experience for their customers. Food retailers have been experimenting with new models to better serve modern shoppers, and the food retailer trade association, Food Marketing Institute, has even partnered with Nielsen on a series of studies on “digitally-engaged consumers.”

Their most recent report found that while just 4.3 percent of groceries are bought online today, they predict that could expand to as much as 20 percent by 2025. And this trend is not being driven by inherently lower prices, but by convenience and service options that modern consumers, particularly millennials, demand.

Additionally, the rise of meal kit services like Blue Apron and HelloFresh has brought more competition to high-end grocery chains like Whole Foods and Trader Joe’s, according to recent research. This trend of pairing groceries with easy-to-follow recipes and meal planning is not only helping families eat healthier but could reduce the tragically large amount of food waste in the United States.

Finally, if internet and omni-channel grocers create marketplace models for groceries as they have for traditional retail, artists, app developers and others, it could create incredible new opportunities for local ranchers, fisherman, farmers and bakers. One of the truly amazing aspects of internet platforms is the opportunities they create for smaller companies to reach a regional, national or global market — without spending billions to build that capability themselves. If these online grocers become platforms in themselves, as venture capitalist Benedict Evans is predicting, local favorites like Polyface Farm could benefit greatly.

If you’re reading this, you’re probably just as surprised as I was to learn how small a player Whole Foods plus Amazon would be in the context of the huge American grocery market. This realization has let me focus more on the ways a digital revolution in food retail could make my life and the lives of all Americans better and healthier.

 

Steve DelBianco is executive director of NetChoice, a trade association of e-commerce businesses.  The views expressed are those of NetChoice and not the views of any individual member company. Amazon is not a member of NetChoice.

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