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Analysis: Amazon’s Whole Foods Purchase Expands Reach

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Amazon’s acquisition of Whole Foods goes beyond just the organic food market. According to analysis by Next, the nationwide presence of 444 Whole Foods stores strategically places Amazon within an hour’s drive of over 70% of the US population, equivalent to approximately 224 million people.

Next conducted a detailed study using data on Whole Foods store locations, AmazonFresh fulfillment centers, US census data, and driving routes. This analysis reveals that this acquisition could be a game-changer for Amazon as it strengthens its “last-mile” delivery network and seeks to establish a foothold in the grocery industry.

A decade ago, Amazon launched its grocery delivery service, AmazonFresh, with the aim of entering the online grocery market. However, its first-quarter grocery sales in 2017 only amounted to an estimated $350 million, according to e-commerce data provider One Click Retail. Although this figure demonstrates a respectable 30% year-over-year growth, it pales in comparison to the industry’s total sales of $150 billion during the same period. In contrast, Whole Foods alone generated $4.9 billion in sales.

With over 100 fulfillment centers across the United States and an extensive sorting network that filters packages by zip code before sending them to local post offices for final delivery, Amazon has a robust logistics infrastructure in place. The company also relies on national shipping services like UPS and FedEx for direct package delivery from fulfillment centers. As part of its efforts to enhance its delivery capabilities, Amazon is expanding its team of last-mile carriers while continuing to use external shipping providers. By leveraging this multi-layered network, nearly all Amazon Prime members in the US enjoy two-day delivery.

However, the delivery of groceries presents a unique challenge for AmazonFresh. Unlike the widespread coverage of Amazon Prime, AmazonFresh has been limited to select metropolitan areas, such as Seattle, San Francisco, Los Angeles, New York City, Philadelphia, Baltimore, Boston, Atlanta, Dallas, Chicago, and Denver. The distribution aspect is an ongoing obstacle to overcome.

Fresh Food Delivery: Amazon’s Strategy

Fresh produce and perishables require specialized warehouses with refrigeration and frozen storage. According to MWPVL, a supply chain consulting firm, out of all of the Amazon fulfillment centers, roughly 16 are dedicated to AmazonFresh and Amazon Pantry and a few others are partially used for food.

Fresh food also requires special delivery conditions, where items are packed with either ice packs or dried ice. Amazon has built its own last-mile delivery system with the so-called “delivery stations.” These stations are typically located in suburbs or airports around big cities. They receive and pack grocery orders properly and deliver them directly to customers on the same day. However, these delivery stations are usually located outside of city centers and away from the most populous areas.

The Role of Whole Foods

Whole Foods could solve the issue of delivery to highly populated areas by leveraging its existing stores. Drive times from Whole Foods locations to AmazonFresh fulfillment centers are relatively short. All of Manhattan, for example, is within a 10-minute drive of a Whole Foods location. Amazon is also reportedly opening a distribution center in Staten Island, further enhancing its delivery capabilities.

The Possibility of One-Hour Deliveries

With the acquisition of Whole Foods, Amazon could potentially offer one-hour deliveries, provided it can streamline the ordering and packaging procedures. This would be a game-changer for customers who require their groceries to be delivered quickly.

Enhanced Shopping Experience

For loyal Whole Foods customers, Amazon could enhance the in-store shopping experience by introducing a streamlined checkout process and potentially offering Prime loyalty benefits. Currently, AmazonFresh only offers grocery pickup at two locations in Seattle. By integrating their technology and logistics expertise with Whole Foods’ physical stores, Amazon can create a seamless shopping experience for its customers.

E-Commerce Transformation

For shoppers who are not as devoted to a local Whole Foods store, Amazon has the opportunity to transform the entire grocery shopping process into an e-commerce transaction. From browsing to checkout, customers can conveniently order their groceries online and have them delivered to their doorstep.

Overall, the acquisition of Whole Foods presents significant opportunities for Amazon to revolutionize the fresh food delivery industry and provide a convenient and efficient shopping experience for its customers.

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