Summary: <br> Amazon’s is the most monopolistic and well positioned marketplace the Western world has ever seen. Last year they did $136B in revenue with double digit growth every year.<br> Yet they haven’t even scratched the surface.<br> The US food retail and food services industry represents a $5.35T market (with $800B+ in grocery alone). That is 40x Amazon’s total global sales – everybody’s got to eat. The food space is the future frontier, and Amazon is betting big.<br> On August 28th, 2017, Amazon decided to buy Whole Foods. Consider this D-Day. The world of groceries will never be the same. Here is why.<br> Amazon’s been salivating over food delivery for years. But, try as they might, their efforts have fallen flat every time. Amazon Fresh had $10M in revenue in Q1 of 2016. That is chump change for Bezos.<br> (NOTE: <a href="https://thesyndicate.vc/the-amazon-apocalypse-of-ecommerce/">For more on Amazon, my experience with the company and how they will kill ecommerce, see this post.</a>)<br> The network problem<br> Amazon is a market. Amazon is a network effect. The reason why the company runs so well is so highly valued is its network of 3rd party sellers and massive customer base.<br> Jeff Bezos founded Amazon on July 5th, 1994. Since then the company scraped and fought its way to market leader status, constantly growing areas of the business.<br> They started with books. Books seemed easy enough to sell online and customers like options (just look at libraries). Bezos committed to crushing it with books. “Books, books, books. That is all we are ever going to sell.”<br> <br> That was the mantra early on. Amazon committed and as they grew a larger and more diverse customer base, other options presented themselves. They branched out into media and digital and quickly Amazon started morphing into a full fledged Everything Store.<br> But the base was crucial. They attracted customers and used the demand to pull sellers to the site. With that the flywheel was born.<br> Imagine if Amazon had started selling everything from day one. There would be no message for customers, confusion for sellers and chaos all around.<br> Systematic Network Expansion<br> Today Amazon is doing the same with Whole Foods. Amazon’s existing supply and demand structure was lacking. Despite the most advanced logistics network in the world, Amazon couldn’t quite get grocery.<br> The reason lies in the nature of the product. Selling widgets is easy. 1,2, 2000… it doesn’t matter how much inventory and what type of products you stock. As long as you wait long enough, eventually you will sell them. It isn’t ideal but with enough money, turn time (speed of sales) is not critical.<br> This isn’t true with food. Milk spoils. Eggs break or go bad and bananas are blobs after a few days. Groceries have to go fast or the business collapses. This is part of the reason food service businesses are so hard. You need choices so customers can choose but with too much stock, waste and spoilage will wreck your profits.<br> <br> Amazon suffered this problem for years. Amazon COULD NOT offer perishable products online. What would they do if they didn’t sell? Eat the lost?<br> And there is no way they could get brands and 3rd party sellers on board without the demand.<br> Whole Foods solves this.<br> Whole Foods is one of the most well known and respected grocery brands. Their fans love them, their health conscious options and the incredible customer service/experience. Plus Whole Foods has locations in all the major urban hubs.<br> Take a look at your average Whole Foods shopper. They are young, have money to spend and are culture and health conscience. This was not Amazon’s demographic initially – meaning Whole Foods opens up a whole new segment of the market to Amazon.<br> But it is much more important than that. Whole Foods is a functioning, balanced, profitable network.
