For years, Amazon has burst onto the scene with the ease and efficiency of shopping online. What’s not to love about having books, electronics, clothes, household items and some food and fresh produce items, often at low prices, delivered to your front door? The value, convenience and the ability to easily comparison shop online has hastened the demise of both smaller shops and many big household names. Remember book superstore Borders? Electronics chain Circuit City? And most recently, Sears?
When Amazon purchased Whole Foods in June, 2017, for $13.7 billion, it became a major player in the U.S. grocery industry, and that leaves a lot for shoppers, retailers and other companies involved in the industry to chew on. For anyone in the business of selling, supplying or hauling groceries: Things just got real.
The online seller is bringing its firepower to a grocery industry plagued by already razor-thin profit margins. The move could slice into profits for food manufacturers, other supermarket chains such as the nation’s largest by market share, Kroger, and behemoths like Walmart, which is currently the biggest seller of groceries in the U.S. with more than one-quarter of the market, according to Euromonitor.
Two Major Threats to Fresh Produce & Food Manufacturers
Food manufacturers and producers need to gear up for two key possibilities:
- Amazon nudging itself into shoppers’ carts with food of its own making. It already has its own brand of many items such as batteries and pet food and Whole Foods sells its 365 Everyday Value brand.
- Amazon engaging in margin-busting negotiations. “If Amazon is able to gain the kind of scale they want in this space, they’ll be very tough in commanding a price,” said Mark Hamrick, senior economic analyst at Bankrate.com.
The day the acquisition went through, prices of many Whole Foods staples immediately dropped. Some price tags decreased by up to 40%. An identical basket of items from a Whole Foods location in Brooklyn went from $97.76 pre-acquisition to $75.85 post-acquisition. In November, 2017, the grocery chain announced that it had cut prices on more items, with a focus on holiday staples and best-sellers. Whole Foods cut prices on a number of brands, including Siggis Yogurt, Chobani, and Tom’s of Maine, in addition to Whole Foods’ private-label 365 line of products.
Additionally, soon after the acquisition of Whole Foods went through, more than a thousand Whole Foods items were added to Amazon.com. Whole Foods goods are available on Amazon.com, AmazonFresh, Prime Pantry, and Prime Now. Currently, to purchase many of the Whole Foods items you need to have an AmazonFresh membership. AmazonFresh is Amazon’s grocery delivery service and costs Prime members an additional $14.99 per month.
In February of this year, Amazon and Whole Foods launched a test to deliver groceries and other goods directly from Whole Foods in four cities across the US. The company plans to roll out the service through Prime Now to more cities by the end of the year. In the test, Whole Foods is basically used as an Amazon depot. Customers can order fresh produce, seafood, meat, flowers, baked goods, and dairy products for delivery, with items arriving at their doorstep within two hours.
“We are seeing a huge ‘pushback’ in price. We sell to distributors. The retailers beat them up… and they beat us up. We have little say in pricing. It is what it is.”
Suzie Ranch, California Fruit Grower
Changing Customer Expectations
In addition to Amazon’s influence, customer expectations are changing. For many, provenance is everything. “Sourced locally,” or “meet our growers,” are messages now commonplace in restaurants and supermarkets. And some argue this will continue with ‘personalization’ whereby the consumer specifies exactly what they want to purchase… . “I want this apple of this color and this size delivered to my door and priced at 50cents.” And some fear that Amazon’s acquisition of Whole Foods will deliver just that, possibly changing the face of fresh produce retail forever.
About 12 percent of U.S. grocery shoppers bought their groceries online at some point in 2016, according to Cowen and Co. Younger generations have been adopting online shopping at a greater pace as they seek convenience over value. Millennials, in particular, are leaning toward ordering their groceries online. This generation is starting to get married and have children and will be spending more on groceries over the next decade.
How to Better Compete and Maintain Profit Margins
As a food manufacturer and distributor, how can you compete against Amazon and maintain or improve your profit margins? The answer is automation, automation, automation. Wherever you can. Velosio FRESH combines the power of Microsoft Dynamics 365 for Finance and Operations with LINKFRESH to provide real-time visibility and operational automation across the organization so that you can meet the demand for fresh, affordable and safe food in a cost-effective and sustainable manner.
Velosio FRESH is the ideal, real time fresh produce software to address the rapidly changing requirements of the US food supply chain sector with key functions including:
- Operations, production planning and Performance
- Pricing, forecasting and planning
- Advanced mobile warehousing
- Packing and transportation management
- Advanced quality management
- Consignment management and third party services
- Analytics and insights
You can give your team secure access to real-time operational data for product intake, quality control, pallet management, inventory management, dispatching, transport management, device management, and business intelligence – whether they’re in the office, in the fields/barn, in the warehouse, or on the road. For more information about Velosio FRESH, download our feature sheet.
Industry Manager, Agribusiness, Velosio
Todd Waterman has spent over 17 years in IT for Agribusiness, including at his own consulting firm, and as Chief Administration Officer for EuroAmerican Propogators in California. From start-ups to enterprise-class organizations, his knowledge of the agribusiness ecosystem and products helps Velosio customers maximize ROI on technology investments.
Today, Todd serves Velosio customers in his role as Industry Manager for Agribusiness. Todd is based in sunny California, and received his BA from San Diego State University in San Diego, California.