Why Amazon Bought Whole Foods

Amazon wants to be the default retailer for everything. This includes groceries. The problem with selling groceries is shelf life. If you don’t turn inventory quickly, you end up throwing away your profit margin.

The grocery business does not lend itself to cross-country shipping due to this perishable factor. In order to sell groceries online, it’s imperative that order fulfillment time be minimized as much as possible so as to reduce waste.

What better way to minimize order fulfillment time than to own local distribution centers in the communities to which you are selling? By buying Whole Foods, Amazon effectively buys local warehouse space. Worth noting also that this warehouse space is located in affluent areas with high real estate costs. Consider the price per square foot of building an Amazon warehouse in Manhattan for example. It would be prohibitive. But it’s all included for Amazon with the Whole Foods acquisition.

Amazon will now be able to operate a delivery business out the backdoor of all these new local warehouses and fulfill customer orders in a matter of hours.

Furthermore, these “warehouses” are also live retail outlets that turn inventory daily (a built-in mechanism for shrink-reduction and branding).

This is why Amazon bought Whole Foods.

Sidenote: I managed at a Whole Foods for several years after college, so this deal is particularly interesting to me. Two of my favorite companies joining up to dominate the grocery industry.