Amazon's swoop for Whole Foods proves the value of physical retail is here to stay

Amazon's swoop for Whole Foods proves the value of physical retail is here to stay

After years in which digital seemed the only growth game, Amazon's Whole Foods deal could be the start of a rebalancing, writes Lida's chairman.

The consequences of Amazon's biggest deal to date have already reverberated around the retail sector.

The £11bn deal not only drove Amazon's share price up (helping Jeff Bezos to close on Bill Gates' title of world's richest man), it had the opposite effect on the stock of other big food retailers with supermarket share prices in the US and Europe reeling backwards from the blow.

While Amazon has been stealthily increasing its presence in the physical space in the US with book stores in key locations, the very presence of the super-sophisticated selling and delivering skills of Amazon on the high street are enough to strike fear into the hearts of rivals.

Whether Whole Foods will really be a serious Tesco competitor in the UK seems less clear; the store is known as "Whole Pay Packet" in the US and it could be that City analysts are a little out of touch with how much the average UK shopper wants to spend on organic staples, let alone Ecuadorean red quinoa.

What is really interesting to us as marketers is that the deal represents an acceptance that being digital is not enough.

Amazon's cyber real estate and warehousing is effectively limitless, so doesn't it feel regressive to chain their grocery offering to the confines of the 460 stores that Whole Foods brings to the party?

For years the cry to traditional bricks and mortar businesses has been "go digital, do whatever it takes, you are doomed if you cannot transpose what you do from the physical to the digital environment."

The reality, of course, is more complicated than that and it is fascinating to see Amazon, the poster child of digital success, choosing to step into a world of self-service grocery stores that dates back just over a hundred years.

The simple fact is that most pendulums swing too far before correcting themselves.

Of course being digital is critical for just about every brand on the planet. But we live in a world of omnichannel customer demand where value is created in a whole variety of ways.

Amazon has been testing the water for their food (and maybe, more importantly, their meals business) in a variety of ways via Fresh, Prime Now and Prime Pantry. It will undoubtedly unleash the power of its delivery infrastructure on Whole Foods to tune up these offerings and leverage the store’s supply chain and ability to pick and pack fresh food close to where customers want to consume it.

But the store will be important too. Some shoppers like to see and squeeze the food they are buying, particularly in the premium world in which Whole Foods operates.

Others like to use the store as a pick up destination; many are already ordering their Whole Foods shop via Instacart but picking it up from the store rather than wanting home delivery.

The store will act as a new form of distribution hub for Amazon but the role it plays as a physical shopping experience and a showcase for organic food product should not be underestimated.

The quiet rumblings as to whether Sainsbury's or Morrisons may be the next target for Bezos’ cash are testament to the value investors see in the omnichannel world.

After a time in which all the traffic has been in the digital direction, perhaps we will start to pass some brands coming back the other way.

Amazon and physical food stores now seem here to stay. What next? Travel agents for Airbnb, taxi offices for Uber, photo booths for Snapchat?

Probably not, but we can be sure Amazon will not be the last digital brand to appreciate the value of a physical presence.

Matthew Heath is chairman at Lida

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