How Amazon’s Acquisition of Whole Foods Could Give the Consumer an Extra Week a Year
by David West, Ph.D
There are some media reports published in the last week concerning aspects of the merger of two iconic companies, Amazon and Whole Foods. For example, a recent Wall Street Journal article asserts Wal-Mart is pressuring suppliers to avoid using Amazon’s cloud service for storing and analyzing data. It seems the grocery industry has sensitive data stored on Amazon servers and now Amazon is dramatically entering as a competitor in the grocery industry. No one expects that Amazon’s entry into the grocery industry will end with the Whole Foods merger.
While Wal-Mart might be focusing on sensitive data, this merger shows that Amazon is not only interested in data (that’s obvious), but they’re also focusing on the customer experience and how this experience will affect the supply chain.
Here, I’d like to focus on one facet of this merger that relates to the design of the supply chain, namely the concept of lean consumption, which applies lean principles to the procurement efforts of the customer. (Womack and Jones, Harvard Business Review, March 2005). Over the past several decades, there has been significant progress designing and operating effective and efficient supply chains on a global scale. This has contributed to the standard of living we enjoy today. Think of smartphones, electronics, apparel, food, etc. The problem highlighted by lean consumption is that the current supply chain design typically stops just short of the customer and does not optimize the customers’ procurement efforts. Let me give a personal example. Wal-Mart is renowned for its efficient global supply chain including the logistics that enable them to deliver on their promise: “We Sell for Less.” Recently, my wife and I tried to purchase lantern oil at a Wal-Mart store 5 miles from our house. Not knowing whether or not the oil would be stocked in groceries, lawn and garden or hardware, we reached out to an employee. He couldn’t help nor could a second employee. Ultimately, we left the store without filling our needed purchase after spending 20 minutes combing the shelves and driving 10 miles.
Wal-Mart lost a small sale and reinforced our perception that it’s not an effective place for us to shop, and wasted 20 minutes of employee time. Why is it not possible to know where something is stocked in a retail store? The supply chain is optimized for efficient flow up to the retail store but ends there. The customers’ procurement process is largely ignored.
A Renewed Focus on the Customer
This is exactly the point stressed by Womack and Jones, and this is where Amazon excels. Amazon is customer centric, thriving on disrupting the retail industry by simplifying the purchasing decision and procurement process. Last weekend, I needed to purchase three items. Rather than spending two hours of my weekend driving to three different stores, I ordered from Amazon in 10 minutes.
So how much time do we spend procuring groceries? Typically we start by creating a shopping list of items we will need for the next week to avoid rework (that is having to return during the week for some overlooked items). Then, frequently on the weekend, we devote the time and cost of driving to our preferred grocery store. With grocery cart and shopping list in hand, we proceed up and down countless aisles hoping to locate and acquire all the items we need. Lastly, we encounter the checkout process and the return trip home. The Time Use Institute estimates the average time spent in a grocery store is 41 minutes, and we make 1.5 trips per week. This means we spend 53 hours of our life annually in grocery stores. If we include the time spent organizing shopping lists, coupons and other promotional offers, and the time spent traveling, we spend 100-150 hours per year of grocery procurement time. The upper end of this estimate is almost one week of our time. How would you like an extra week each year?
The Shifting, Grocery Business Paradigm
In my opinion, this is where Amazon will attack the existing grocery business model. They will streamline the procurement process and give you, the customer, some of your life back. I am not suggesting that everyone will appreciate this. Some people may intrinsically value their time spent grocery shopping. They may consider it enjoyable leisure time, but sign me up for the “I want some of my life back” option.
I think it’s fair to say Whole Foods is struggling with its current web and technology initiatives. If you scan ratings of the Whole Foods app, you will find a lot of distressed customers. The procurement process starts with a grocery list, a feature included in the app. However, users complain that the list cannot be edited or deleted! It’s permanent. The workaround suggested by frustrated customers includes deleting the app, reinstalling the app and then creating a new list. Does this sound customer centric? The promotional coupons issued by the app is another source of aggravation for customers. The scanners at checkout frequently cannot read the coupons from the customers’ phone. Repeated efforts to get a successful scan slow the checkout process. The workaround is to charge the customer full price and then direct them to customer service where they refund the coupon savings. Do you think Amazon can improve this situation? Most certainly.
Amazon’s longer term objective will likely be to use the Whole Foods infrastructure to experiment with web-based orders that are shipped directly to customers. Amazon is investing in several experimental technology initiatives today to support this capability including same day delivery, the use of delivery drones (or autonomous delivery vehicles), anticipatory shipping and urban delivery of fresh foods.
Are you ready to recover some of your life? I am.
David West, Ph.D., is an associate professor in the College of Business at East Carolina University. His research activities are largely focused on the application of machine learning algorithms to business and supply chain problems. Dr. West has been teaching in the Marketing and Supply Chain Management Department at ECU for 21 years. He has an engineering and business background and spent a number of years working for large corporations in the process industries.