With Amazon’s Whole Foods acquisition, the web-giant gains 460 stores that can double as fresh food distribution centers and online order pickup points.

With Amazon.com Inc.’s $13.7-billion planned acquisition of Whole Foods Market Inc., the online retail giant is moving from a largely online retailer with a trivial number of stores (eight bookstores, two grocery pickup points and one convenience store) to a retailer with a significant offline presence.

Whole Foods’ physical locations will provide Amazon with retail space where it can sell organic kale and experiment with checkout lanes, as well as fresh food distribution centers.

Currently, Amazon’s grocery offerings are varied and not intuitive for consumers to navigate. For example, Amazon Prime members can buy non-perishables via Prime Pantry, which offers free shipping if shoppers buy five qualifying items or, if they buy fewer items, they can pay $5.99 per box; or Prime members in certain U.S. cities can buy perishables via AmazonFresh for a $14.99 fee; or consumers can sign up for regularly scheduled delivery of consumables and get 15% off those products via Amazon Subscribe and Save.

Amazon currently holds 18% of the online grocery market share, according to Slice Intelligence, which analyzes online sales based on the email receipts of a panel of 4.7 million consumers. Amazon’s fresh grocery sales, however, have not grown as quickly as some of its other endeavors, such as fashion, in which sales of Amazon’s private-label apparel products increased 67% in the fourth quarter of 2016 compared to the third quarter, according to Slice Intelligence. AmazonFresh accounted for only 9% of grocery delivery sales between January-October 2016, according to data management platform 1010data. (FreshDirect LLC (No. 79 in the Internet Retailer 2017 Top 500), Peapod LLC (No. 62)  and Instacart were the leaders.)


“Groceries is the last retail challenge for Amazon given its perishability,” says Joe McCann, CEO of open source software company NodeSource.

The Whole Foods acquisition could be a signal that Amazon, No. 1 in the Top 500, respects the limits of non-store retailing, says Keith Anderson, senior vice president of strategy and insights at price-monitoring firm Profitero.

“Amazon Fresh has long been strategic to Amazon but, by definition, it is much more challenging to scale at the pace of, say Prime Pantry, which sells only shelf-stable food and consumables nationally and has been growing significantly faster,” Anderson says. For example, some of Profitero’s clients say Pantry sales account for 40-60% of their total volume of sales on Amazon, whereas Amazon Fresh sales typically accounts for less than 10% of their sales, Anderson says.


With Whole Foods, Amazon will add 460 stores that can serve as fresh food distribution centers to source perishables for its grocery programs at scale, says Jennifer Sherman, senior vice president of product and strategy at e-commerce software vendor Kibo. 67% of Whole Foods’ sales come from perishable goods, Profitero’s Anderson says.

“Amazon realizes fresh food warehouse needs do not fall under the warehouse network that Amazon has built,” Sherman says. “To effectively play in the organic expansion space, Amazon needs a net new build out of a cold chain in Amazon’s distribution network and with this acquisition they just bought themselves a distribution network.”

Amazon may also use Whole Foods locations as online order pickup locations, says Charles Dimov, director of marketing of order management software company OrderDynamics. While Amazon offers one- and two-hour delivery in certain markets with its Prime Now service, the acquisition gives shoppers more delivery options that could be more convenient in the grocery space, says Tushar Patel, chief marketing officer at Kibo.

Amazon is already experimenting with buy online pick up in store with groceries with a beta test it announced in March called AmazonFresh Pickup. The service, offered in two Seattle neighborhoods allows Prime members to place grocery orders, schedule a pickup time, park in a pickup spot at the location and her groceries are loaded into her trunk.