Just over three years ago, Amazon acquired Whole Foods for $13.4 billion. It came as no surprise to me, especially considering I had made this recommendation back in 2013. However, the news made headlines and shocked the grocery and retail industry in general.
Is Amazon looking toward becoming the biggest grocery retailer? Or rather, the most innovative? I have my thoughts on the next steps the company could take, and time will tell the direction it chooses.
While other companies don’t have the same size, financial pull or influence as Amazon when looking to add other brands to their portfolio through acquisition, there are some key factors that should be considered in the acquisition process.
Focus On Better, Not Bigger
I have provided consulting on acquisitions while a consultant for Capgemini and Deloitte, while I worked at Amazon and as a consultant for Kroger and other business clients.
Based on my experience, the most difficult challenge faced by companies isn’t finding a company to acquire or making an acquisition. It’s making the acquisition work and achieving the goals of why an acquisition was made in the first place. Far too many companies are focused on making an acquisition to become larger when their focus should be on acquiring a company that will make them better. Big difference.
When I attend meetings with clients to discuss an acquisition, I listen for words and phrases that indicate to me that the executive speaking believes “bigger is better.” It’s not. I have made the timeout signal used in football games more times than I can count to stop a discussion about an acquisition. I then start the conversation over by listing and explaining the key reasons why acquisitions should be made and when they shouldn’t.
What I learned from working at Deloitte and providing consulting to leading strategy firms is that regardless of the industry, all businesses must have a product and service portfolio that is set up for success. This is a must-have. Companies succeed when they identify what they’re really good at, and then they develop those capabilities until they have achieved best-in-class capabilities.
Tesla’s differentiating capability is its ability to manufacture leading-edge electric vehicles. Tesla has a portfolio of vehicles that has set it up for success. A strategic acquisition Tesla could make would be to acquire Jeep from Fiat Chrysler Automobiles. I could see Tesla creating power trains and other technology to manufacture electric-powered Jeeps without diluting the brand or Jeep’s brand. The Jeep brand could significantly drive more customers to Tesla while increasing the value of the company.
There’s been talk of Target acquiring the grocery retailer Kroger, which aligns perfectly with Target’s portfolio of selling general merchandise, brands, private labels, and groceries. In my opinion, acquiring Kroger makes sense considering the marketplace opportunities in retail for Target to increase the percentage of customers it can serve by selling more groceries. Acquiring Kroger could improve Target’s capabilities and also increase the size of Target in terms of market share and number of stores. In addition, it would give Target access to Ocado’s robotic grocery picking automation which would create a competitive advantage.
When done correctly, a company can make an acquisition that makes them better and bigger.
My advice when considering an acquisition is to do the following: Write a detailed research paper outlining the who, what, when, where, and why of the acquisition. Be detailed. Then work backward from the customer to identify where the value will be added. If the acquisition doesn’t add value to customers or align to the differentiating capabilities or portfolio of the company, scrap the acquisition.
Focus On Outlasting, Not Competing
Companies must also pivot away from competing. Companies don’t have an agreed-upon scoring mechanism, nor do they only operate for a designated period of time. Competition is best suited for sports.
Successful businesses understand that it is best to play an infinite game where the goal isn’t to win, but it is to outlast other companies. For example, Japan’s Genda Shigyo, a paper production company, was founded in 771 and continues to operate today.
Don’t focus on your competitors; focus on your customers.
In addition, and this is key: Many companies are utilizing business models that aren’t aligned with the needs of consumers or the technologies consumers rely on daily. The first grocery store in the U.S., Piggly Wiggly, opened in 1916, and little has changed in the design of grocery stores over the last 100 years.
It can be argued that most grocery retailers continue to offer a grocery model from another era, instead of embracing robotics and other technology to reimagine the grocery experience for the needs of customers today and into the future.
It is imperative that companies assess the ecosystems in which they operate to identify the optimal strategy for shaping consumer behavior and influencing categories and markets. If lacking technology or research and development (R&D) capability, acquire a company that provides the capability. If lacking a presence in a category or market, make an acquisition of products or services to set the company up for success with a winning portfolio.
I believe this is what drove Amazon, the largest e-commerce company in the world, to determine that it needed to make an acquisition of a physical retailer. In my opinion, Amazon didn’t have a winning portfolio. AmazonFresh fell short of meeting the grocery needs of consumers within Amazon’s ecosystem. After assessing consumers’ needs and evaluating the different retailers that could be acquired, Amazon chose Whole Foods.
Amazon’s intentions with its acquisition of Whole Foods isn’t to be a major grocery retailer. If that were the case, it likely would have acquired a brand like Kroger. Instead, as an e-commerce company that’s proven to be innovative, Amazon can apply its technology-driven innovations to reimagine the grocery experience — focusing on becoming better, not bigger.
Follow Amazon’s model and focus on outlasting competitors while providing a portfolio of products and services your customers want most.