Stratechery: Why amazon acquired whole foods?
Answer: Amazon wanted to buy a customer for its grocery services.
Background
-
Amazon acquiring Whole Foods = Apple’s iPhone beating Palm
- Don’t misunderstand goals vs strategies vs tactics - Apple’s strategy
- is not to build a phone but to build personal computer
- is not to add functionalities to a phone but to reduce the phone to an app
- is not to duplicate the carriers but to leverage their customer connections
- iPhone is the most successful product of all time = Amazon is the most dominant company of all time
- Don’t misunderstand goals vs strategies vs tactics - Apple’s strategy
-
Amazon's Goal
- Initially,
Amazon.com
’s objective is to be the leading online retailer of information-based products and services, with an initial focus on books. - Then, it says "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."
- ==Amazon’s goal is to take a cut of all economic activity.==
- Initially,
-
Amazon's Strategy
- to enterprise: AWS. Assuming that all businesses will soon be Internet-enabled businesses.
- to customer: Prime. Assuming that superior cost/and/superior selection are not sustainable. With prime, alternatives won’t be even considered by customers.
- However
- grocery is the largest retail category.
- grocery is the most persistent opportunity for reminding users there are other alternatives.
- However
-
Tactics: develop grocery services
Why hadn’t Amazon figured out the right tactics?
Book | Grocery |
---|---|
high SKUs = large selection | less SKUs(30k - 50k) |
standardized | vary in quality |
imperishable | perishable |
AmazonFresh’s cost disadvantage
- High costs of perishable items if not scaled
- Scale needs to be based on cities
Why can acquiring Whole Food (not doing other things) solve the scale problem?
==Primitives model for business with 1) hight fixed costs 2) high returns to scale==
- decouple infrastructure into Minimal Sellable Units (MSUs)
- business itself is ==The First-And-Best Customer== of those MSUs
- resell MSUs to the outside
AWS Three Layers
Services | Primitives | S3, EC2, RDS, SNS, ... |
---|---|---|
Platform | AWS | High Fixed Costs + Returns to Scale |
Infrastructure | Modularized Components | Data center, Servers, Storage, Switches, Bandwidth |
- MSUs are S3, EC2, RDS, SNS, etc
- The First-And-Best Customer is
amazon.com
- resell MSUs to non-Amazon developers
Amazon.com
Three Layers
Services | Packages | FDA, Amazon Pay, ... |
---|---|---|
Platform | Fulfillment Centers | High Fixed Costs + Returns to Scale |
Infrastructure | Modularized Suppliers | Manufacturers, 3rd Party Merchants, ... |
- MSUs are FDA, Amazon Pay, etc.
- The First-And-Best Customer is Amazon first-party e-commerse
- resell MSUs to 3rd party merchants
The insight here is that grocery business has no first-and-best customer.
Perfect Customer
After fitting in Whole Foods to the big picture, we can see that ==Amazon is buying more than a retailer - it’s buying a customer==.
Amazon.com
Three Layers + Customers
Customers | Whole Foods, Delivery, Restaurants | |
---|---|---|
Services | Groceries | Meat, Fruit, Vegetables, Non-perishables, ... |
Platform | Fulfillment Centers | High Fixed Costs + Returns to Scale |
Infrastructure | Modularized Suppliers | Store Brand, Name Brand, Local Suppliers, Regional Suppliers, ... |
Now Amazon Grocery Services can serve AmazonFresh and WholeFoods, and then in the future restaurants or whatever can consume it.