How Amazon’s acquisition of Whole Foods will impact the global beverage brands
01 / 29 / 2018 by IDW
Amazon’s acquisition of Whole Foods earlier this year marked a turning point in the fresh grocery and natural foods industry. Amazon’s entrance into the natural foods and fresh produce market allows them to bring their massive scale and industry-leading efficiency to bear on new territory. While the effects of Amazon’s entrance into the fresh food and grocery market are only beginning to become apparent, it is projected to upset the status quo for years to come. One sector that is projected to experience significant change from this acquisition is in the global beverage market. In this article, we’ll discuss how Amazon’s acquisition of Whole Foods will impact the global beverage market. Specifically, Amazon’s purchase of Whole Foods is interacting with nascent trends in the global beverage industry, and is poised to accelerate the changes that already existed, and have changed, the beverage industry over the last few years.
One of the first major changes that the Amazon takeover of Whole Foods brought was a rapid change in the pricing structure. On the day that the takeover was finalized, Amazon slashed prices across the board in in Whole Foods by nearly 40%. This was followed up within a few months with more price cuts, positioning Whole Foods toward a more competitive pricing structure. For the major brands that Whole Foods carries, which lean towards organic foods and innovative formulations, these price cuts make their products much more accessible to lower income consumers. At the same time, this pricing structure has disrupted a number of markets, including the global beverage market. Amazon is capable of bringing an aggressive pricing structure to bear on the grocery industry due to their massive scale and logistics capabilities, which allow them to run their grocery business like their online distribution business; with razor-thin margins. While this spells trouble for smaller chains in the organic grocery industry that can’t make the same cuts, it also disrupted the pricing structure that existed across global beverage brands, particularly for the organic and unique formulations that Whole Foods carries.
In addition to a significantly more aggressive pricing structure, the brands and products that Whole Foods carried are now available on Amazon’s wide grocery distribution network, which includes AmazonFresh, Prime Pantry, and Prime Now. One major effect of this in the global beverage industry is the wider exposure of consumers to the products and beverage formulations that heretofore were only available in high-end and boutique health food stores. Now, these same products can be delivered to AmazonFresh members the same day. The effects of this still remain to be seen. However, early indications are that this is going to result in an uptick in sales from the organic and natural beverage market, due to increased exposure, availability, and more accessible pricing. For global beverage brands that have secured a foothold in the natural and organic beverage market, this is a great opportunity for their products to have a wider distribution across Amazon’s selling network.
Not all of the changes that Amazon is making will prove to be beneficial for global beverage brands. Shortly after taking over Whole Foods, Amazon announced that they would no longer allow brand marketers to interact directly with stores. This means that brand marketers are no longer allowed to go into most Whole Foods stores and lobby to have their products carried there. Brand marketers whose products are already carried in Whole Foods will not be allowed to go to physical store locations and check to see how their products are stocked and displayed, or to set-up promotional events in store for their products. This is a major setback for brand marketers, which rely on ideal product placement and exposure, and in some cases have products that have become popular from the type of grassroots product promotion that Amazon is curtailing. In the future, beverage brand marketers that wish to have their products carried in Whole Foods stores will need to work directly with Whole Food’s’ corporate offices. On the plus side, whereas in the past beverage brand marketers would work directly with individual Whole Foods stores to have their products displayed and promoted, now beverage brand marketers that secure a spot in Whole Foods will most likely have their products distributed to a much wider swath of Whole Foods locations.