Whole Foods Gives Amazon a new Digital Edge
While much of the focus on Amazon’s massive acquisition of Whole Foods Markets has been on what many believe is a move into broader retail footprint and its ongoing attack on consumer margins, the reality is that this acquisition is about locality and Amazon extending its Digital Edge.
First off, what is the Digital Edge? It’s a shift nearly every business is going through to better embrace its customer base where they live and how they want things. Started in the dawn of the web era, reaching a broad market of geographically dispersed customers was not well accomplished simply by being on the Internet. To deliver a strong customer experience you needed to get your content as close to your customer as possible, as quickly as possible. And this was only achieved, at the time, via a content delivery network, like Akamai.
As we shifted to mobile applications and continue to shift to more real-time interactions with clients, caching static content at the edge isn’t good enough. What you need now is broad distribution of your content so interactions can happen closer to your customers. To achieve this you need to move away from the model of a small set of headquarters-centric data centers with open Internet and VPN-based connections, to distributed data center footprints where the distance between your applications and your customers are as short and connectivity-rich as possible.
But wait, isn’t that one of the core value propositions of Amazon Web Services (AWS)? It’s the market leading global public cloud platform with data center locations across the US, and around the world. Don’t they already have a digital edge as a result? Yes, if the customer engagement were purely application and digital content-centric. But that’s not the case with groceries. But wait, doesn’t Amazon also have a huge distribution of warehouses throughout the world enabling it to deliver goods within days of nearly everyone? This is, of course, also true. But if the massive distributed digital edge that Amazon has, as described above, were good enough for grocery delivery, wouldn’t it be as dominant in groceries as it is in books, electronics and other retail goods? If that were the case, there would be no value in acquiring Whole Foods.
This acquisition is as much about gaining greater credibility in the grocery business as it is about getting closer to the customer with a richer Digital Edge. Amazon’s biggest challenge in its efforts, thus far in grocery delivery have been two fold:
* A suitable means of shopping for fresh meats and produce. While digital experiences have certainly improved the efficiency and effectiveness of buying most goods, including a vast majority of the items you can get at your local grocery store, much fewer people are comfortable trusting an online provider to give them visibility into which head of lettuce, fresh cherries or Alaskan salmon they should buy. And while a prominent driver of online purchases is the lowest price available, rarely is that a good decision when it comes to fresh produce. More people prefer to walk into a grocery store or visit the local farmer’s market, so they can see, first hand, which of these items looks the freshest, holding the most flavor appeal. And if there is anything Whole Foods has thrived at, it is the delivery of fresh, organic produce, fish, and meats.
If consumers will trust anyone with delivery of such fresh items, they are more likely to trust their local grocery story or online chef services like Munchery and Blue Apron (assuming they are local to their area). They trust them more for two reasons, first they have recognize and validated that these companies have quality foods and trust that what is delivered will meet the standards they expect. Second, the delivery of these fresh items can be had within the same day they are requested. Which leads us to Amazon’s second challenge.
* An inability to provide fast enough and effective delivery of fresh meats and produce. While people who live within a day’s drive of an Amazon warehouse can certainly expect similar delivery times as the services mentioned above, most of us do not. Being able to guarantee single-day deliver of fresh fish and produce isn’t realistic from the same distribution model that works for laptops and shoes. While you certainly can buy salsa, sodas, wine and other ingredients for you home-cooked meals, thus far the market has not yet shifted to trusting online retailers with this class of products.
This is why Whole Foods’ 431 brick-and-mortar stores hold such high appeal - plus the strong reputation the company has for providing the best fresh foods. While much of Whole Foods’ initial differentiation, as the market leader in organic foods, as been eroded by its peers, that reputation is still held strongly. And while I don’t hit Whole Foods every week or for all the fresh foods I buy, if I want the very best selection of organic goods and the farmer’s market isn’t open that day, Whole Foods is definitely my go-to grocer. And If Amazon’s cost efficiencies can turn Whole Foods into the price and freshness leader, I’ll be going there a lot more often.
One could argue however, that buying Whole Foods is only solving for a short-term problem, as Amazon’s investments in delivery drones, warehouse robotics, and autonomous vehicles, should certainly address the delivery shortcomings it has today. And with real-time video, and virtual reality (VR), enabling consumers to see how fresh the produce is and request exactly which head of lettuce they want delivered, both the above challenges should arguably be overcome in the next 2-5 years. Right?
While we can certainly expect that to be the case, there remains a very strong value proposition for locality around fresh food shopping. And one that likely won’t go away for the majority of consumers that quickly.
Locality carries a lot of weight in terms of the personalized experience, consumer interaction and breadth of experience that can be delivered right there. For example, I often know what ingredients I need when I enter the grocery store but come out with a lot more fresh foods I wouldn’t have considered without walking up and down the isles. And it gets even better when you can combine this in-person experience with what you can deliver to the customer electronically, such as sodas, condiments and caned foods from Amazon Fresh.
For more proof of this observation, read about the study on this topic conducted by Pymnts.com.
This combination of retail and digital is something Starbucks has proven well with its mobile app. You wouldn’t want a Carmel Macchiato delivered by Amazon but walking into a Manhattan Starbucks during rush hour gets way better when you can order before walking in the door and never have to stand in line.
To that aim, this isn’t simply a return to retail play by the market’s leading e-retailer. It’s the combination of what’s right to offer locally with what’s best offered online. And just as we’ve seen Amazon aggressively invest in pickup locations for Amazon deliveries they now have 431 more such locations where you can get the fresh stuff live and have the rest ready to pop into your cart and walk out the door.
That is the true definition of the Digital Edge. It’s not purely about caching content closer to the customer but providing an overall better experience, one that combines what is right to deliver in the right way. And every company should take to heart what Amazon has done when building their own Digital Edge strategy. The key to success is interconnecting those services and capabilities you today host in the cloud, via SaaS providers or in your own data centers, with the local devices and touch points (whether retail, a local data center, an IoT gateway, etc.) that provide the richest customer experience possible.
At Equinix we enable companies of all sizes, shapes and vertical markets to expand their Digital Edge through the largest geographic fleet of data centers (greater even that the global public clouds, who are all customers), quick deployment options (like our Performance Hubs and Data Hubs) plus the largest and most flexible carrier-neutral interconnection portfolio. True value in customer experience isn’t about doing it from the cloud or purely through a mobile app. It’s about knowing what experience your customers want and what experiences best meet their needs and giving them the most empowerment. It doesn’t mean everything has to be at the edge, nor does it mean you must have offices everywhere but you can build out the architecture that provides the right mix of these options.
What’s the best way to determine which architecture is best for your business? Start by bringing together your customer experience and IT architecture professionals to build out the experiences you want to deliver. Then visit the IOA Knowledgebase where you can leverage proven best practices to build an Interconnection Oriented Architecture (IOA) that best delivers this experience.
We’re here to help you achieve this objective and are laser-focused on helping you build out a winning Digital Edge. Let us know how Equinix can help you build your winning Amazon/Whole Foods experience.