An Eating of Words

Looking back through history, there have been a number of times where a CEO of a company simply brushed off their competition. A recent article from Stratechery has an amusing little anecdote to highlight just such an occasion.

“Back in 2006, when the iPhone was a mere rumor, Palm CEO Ed Colligan was asked if he was worried: ‘We’ve learned and struggled for a few years here figuring out how to make a decent phone,’ he said. ‘PC guys are not going to just figure this out. They’re not going to just walk in.’ What if Steve Jobs’ company did bring an iPod phone to market? Well, it would probably use WiFi technology and could be distributed through the Apple stores and not the carriers like Verizon or Cingular, Colligan theorized.”

Oddly enough, the CEO of Whole Foods, John Mackey, said something very similar pertaining to Amazon’s ability to fine tune their logistics capabilities to groceries only two years ago. So what changed that has now put the entirety of Whole Foods under Amazon’s control?

It’s because they misunderstood their competitions motives and goals.

The Evolution of Amazon

When Amazon first started back in 1997, their mission statement was simple: “Amazon.com’s objective is to be the leading online retailer of information-based products and services, with an initial focus on books.”

Which then grew into:

“Our vision is to be earth’s most customer centric-company; to build a place where people can come to find and discover anything they might want to buy online.”

While their initial mission statement seemed rather unambitious, what their current goal is now is certainly a lot grander. So what does that have to do with them buying Whole Foods, other than it gives them another product to offer online? Simple. A chance, to flex their logistics muscles.

Amazon Brand Logistics

Given the massive size and scope of Amazon’s delivery radius, it only makes sense that they would develop a logistics network. After all, that’s pretty much how their cloud computing service started, as an in-house function which eventually became sophisticated enough to market out to their competitors. While having a logistics network is all well and good, being able to deliver groceries and other perishables in a timely manner is something entirely different. Fortunately, Amazon’s logistics capabilities have grown to the point that they are now ranked the second largest logistics company in the world. Not only do they have the assets in place to handle groceries, but with Whole Foods under their wing, Amazon has set the stage to be the household provider of… well… everything.

Amazon has set the stage to be the household provider of… well… everything.

The Whole Foods Overlay

So how effectively can Amazon get into grocery logistics? Books and home goods don’t have an expiration date the way that groceries do, so making the switch seems like a colossal undertaking, right? Well, not exactly. The truth behind the trick is that Amazon isn’t necessarily buying a food retail outlet, but rather they have purchased their very own best customer. In much the same way that Amazon built their web service as “in house” Amazon Fresh will be similar. Turning their logistics structure into supplying Whole Foods will create the architecture necessary to branch out into other markets including restaurants.

Amazon has purchased their very own best customer

“In the long run, physical grocery stores will be only one of the Amazon Grocery Services’ customers: obviously a home delivery service will be another, and it will be far more efficient than a company like Instacart trying to layer on top of Whole Foods’ current integrated model,” says Ben Thompson from Stratechery.

“I suspect Amazon’s ambitions stretch further, though: Amazon Grocery Services will be well-placed to start supplying restaurants too, gaining Amazon access to another big cut of economic activity. It is the AWS model, which is to say it is the Amazon model, but like AWS, the key to profitability is having a first-and-best customer able to utilize the massive investment necessary to build the service out in the first place,” he added.

At the end of the day, we have to realize that Amazon is simply a service provider.

At the end of the day, we have to realize that Amazon is simply a service provider. Even their grocery services are simply another service offering that is built on and therefore protected by the scale of it. Purchasing Whole Foods has given Amazon a wide enough landing pad to pull off grocery chain logistics because of the size of their primary customer.

Grocery Chain Logistics

Are you a company that ships products to grocery chains? Do you find yourself with costly carrier invoices or freight reclassification? BlueGrace recently partnered with a company that specializes in creating healthy, protein-rich treats and was having these exact issues, and many more.

After partnering with BlueGrace, they saw a 14% reduction in transportation costs, an annual savings of $225,000

We saw several opportunities to cut their costs and improve their bottom line. Find out how this company was able to find over 14% reduction in transportation costs, an annual savings of $225,000, when they allowed BlueGrace to optimize their supply chain.

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