I wake up at 4 AM to go work out. Before I go to the gym, I check for messages. I communicate with people from around the world on LinkedIn including the press, students, professors, consultants, and executives. I’m grateful for the opportunity to interact with so many people. I also enjoy the fact that many people like to send me questions.
For example, this morning I received a link to this article and a list of questions. I’ve shared my answers on this post:
1️⃣ Why does Amazon want to sell groceries? Think of Amazon as an ecosystem filled with customers that have many needs, for example, groceries and food. Amazon generates revenue for every need they fulfill for customers.
2️⃣ Is it worth it for Amazon to sell groceries? The grocery industry is worth an estimated $800B. Amazon can’t ignore that big of a market. Groceries are strategic to Amazon.
3️⃣ What is Amazon’s strategy? I’m confused. Don’t feel bad, Amazon is also confused but they’re trying to work things out. It’s not easy.
4️⃣ You listed Sprouts Farmers Market as an acquisition for Amazon in the past – should they buy it? Should Amazon acquire Kroger and Amazon stores? THE ANSWER IS NO TO BOTH QUESTIONS. See Comments.
5️⃣ You’ve been the most accurate when predicting what Amazon will do. What do you think Amazon should do?
I believe there are three key options for Amazon to consider:
Option 1.
Divest Whole Foods Market to Target. Kill Amazon Fresh and Amazon Go. Close all of the stores. Amazon entered an established market with entrenched well-run competitors like Kroger, Walmart, etc. Going head-to-head against the leaders will be nearly impossible. Exit the grocery business altogether.
Option 2.
Creating a new market is less risky and more rewarding than entering an established market. Reimagine the entire life cycle for how and why consumers eat food at home and why they buy groceries. Create a new business model that allows Amazon to avoid competing head-to-head with entrenched players in an established market. Don’t become a grocery retailer, reimagine the grocery and food experience.
Option 3.
Go BIG. Acquire Target and open Whole Foods Markes inside each store, or acquire Costco Wholesale. Open Whole Foods+ stores that sell organics and branded CPG products like Coke, Tide, Pepsi, etc.
Acquire Trader Joe’s, Wakefern Food Corp., and regional grocery chains. Use groceries as a loss leader to attract more customers.
If I ran Amazon’s grocery business, my focus would be on Option 2. I’m not being dramatic when I state that Amazon can spend billions expanding into groceries, including building and buying stores, and have nothing to show for it. Groceries can turn out to be Amazon’s Vietnam.
Amazon can win the grocery war but only if they choose the battlefield, and they leverage strategy and tactics that minimize the advantages of the entrenched players.
