Amazon’s New Customer is a really great analysis by Ben Thompson of Amazon’s strategy and why Amazon bought Whole Foods: they purchased a new customer for Amazon infrastructure, not a retailer. Early on in the piece, Thompson lays this one on us:
Amazon’s goal is to take a cut of all economic activity.
No qualifiers. All economic activity. In the world. Sort of a Dutch East India Company for the internet age. Thompson explains how they’re going to do it and why fresh food is such a strategic hole for them.
As you might expect, given a goal as audacious as “taking a cut of all economic activity”, Amazon has several different strategies. The key to the enterprise is AWS: if it is better to build an Internet-enabled business on the public cloud, and if all businesses will soon be Internet-enabled businesses, it follows that AWS is well-placed to take a cut of all business activity.
On the consumer side the key is Prime. While Amazon has long pursued a dominant strategy in retail — superior cost and superior selection — it is difficult to build sustainable differentiation on these factors alone. After all, another retailer is only a click away.
This, though, is the brilliance of Prime: thanks to its reliability and convenience (two days shipping, sometimes faster!), plus human fallibility when it comes to considering sunk costs (you’ve already paid $99!), why even bother looking anywhere else? With Prime Amazon has created a powerful moat around consumer goods that does not depend on simply having the lowest price, because Prime customers don’t even bother to check.
This, though, is why groceries is a strategic hole: not only is it the largest retail category, it is the most persistent opportunity for other retailers to gain access to Prime members and remind them there are alternatives. That is why Amazon has been so determined in the space: AmazonFresh launched a decade ago, and unlike other Amazon experiments, has continued to receive funding along with other rumored initiatives like convenience store and grocery pick-ups. Amazon simply hasn’t been able to figure out the right tactics.
When I heard about the Whole Foods deal, the first thing I thought about was Amazon Go. The company has been trying to experiment with different retail environments, but without the proper scale, it doesn’t make a lot of sense. Whole Foods gives them a chance to develop their fresh food delivery infrastructure at scale…so that they can offer it to other customers just like they do with AWS.
P.S. Whenever I think about Amazon as a business, I recall this 2012 post by Eugene Wei on Amazon’s low-margin strategy. I suspect Thompson’s post will join it in my thoughts.
And if you want a sense of how weird, and how fraught, the relationship between science, politics, and commerce is in our modern world, then there’s really no better place to go.
In The Daily Beast Michael Schulson provides a alternate view on Whole Foods: America’s Temple of Pseudoscience. (The first time I read this, I nearly spit out my probiotic-infused kombucha, kale, quinoa, coconut water shake.)
Using Whole Foods as an example, Martin Lindstrom shows how retail stores use subtle tactics to get people to buy more than they might have otherwise.
Speaking of fruit, you may think a banana is just a banana, but it’s not. Dole and other banana growers have turned the creation of a banana into a science, in part to manipulate perceptions of freshness. In fact, they’ve issued a banana guide to greengrocers, illustrating the various color stages a banana can attain during its life cycle. Each color represents the sales potential for the banana in question. For example, sales records show that bananas with Pantone color 13-0858 (otherwise known as Vibrant Yellow) are less likely to sell than bananas with Pantone color 12-0752 (also called Buttercup), which is one grade warmer, visually, and seems to imply a riper, fresher fruit. Companies like Dole have analyzed the sales effects of all varieties of color and, as a result, plant their crops under conditions most ideal to creating the right ‘color.’
(via @daveg)
This week’s issue of the New Yorker has a long profile of John Mackey, the CEO of Whole Foods.
John Mackey, the co-founder and chief executive of Whole Foods Market, refers to the company as his child-not just his creation but the thing on earth whose difficulties or downfall it pains him most to contemplate. He also sees himself as a “daddy” to his fifty-four thousand employees, who are known as “team members,” but they may occasionally consider him to be more like a crazy uncle. To the extent that a child inherits or adopts a parent’s traits, Whole Foods is an embodiment of many of Mackey’s. A Whole Foods store, in some respects, is like Mackey’s mind turned inside out. Certainly, the evolution of the corporation has often traced his own as a man; it has been an incarnation of his dreams and quirks, his contradictions and trespasses, and whatever he happened to be reading and eating, or not eating.
1. Usually when you order meat or cheese at the deli counter (e.g. “I’ll have a 1/2 pound of pastrami, please”), the person behind the counter tries to get as close as they can to the weight you ordered but it’s often a little over and you’re charged for the overage. I’ve noticed that what they do at Whole Foods is that they only charge you for what you asked for but they give you the little extra for free. So yesterday I asked for a 1/2 pound of roast beef, but it came out to 0.57 when he weighed it. He lifted a bit of the meat off the scale until it read 0.50, printed the ticket, and put the little extra back on the scale. It’s a nice gesture and a good example of using customer service instead of marketing or advertising to give a current customer a warm and fuzzy feeling about the company…and it only costs them 20 cents-worth of roast beef.
2. We went out to eat with some friends the other night but the restaurant was tiny, packed, and didn’t have anywhere to put Ollie’s stroller. So the owner took the stroller and put it in the back of his truck that was parked out in front of the restaurant. (While there, we dined on a cheese plate with, like, 30 to 40 different cheeses on it, some of which were made by the stroller valet himself.)
How Whole Foods is using longer checkout lines to ensure faster checkouts in its Manhattan stores. “Whole Foods executives spent months drawing up designs for a new line system in New York that would be unlike anything in their suburban stores, where shoppers form one line in front of each register. That traditional system, they determined, would take up too much space and could not handle the crowds they expected here.”
Whole Foods’ stock is going down, but maybe it shouldn’t be. “The whole idea of good food and gourmet eating has begun to transcend the PBS-store bag toter.”
With Wal-Mart selling more organic and Whole Foods expanding like crazy, organic foods are moving from the counterculture to “bean-counter culture”.
Debate between economist Milton Friedman, John Mackey (CEO of Whole Foods) and T.J. Rodgers (CEO of Cypress Semiconductor). The discussion centers around Friedman’s assertion that “the social responsibility of business is to increase its profits”. (via mr)
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