Stores like Walmart and Kroger have spent decades growing their physical presence through store construction and acquisitions. And, for the last 20 years, they have expanded product offerings, tracked customer behaviors and digitized services. These actions have been part of brick-and-mortar stores’ defenses against online retailers. But Amazon's purchase of Whole Foods is a huge battering ram at the gates.
With the acquisition, Amazon inherits 400-plus physical locations. And these are not bland warehouses hidden down an industrial drive. Whole Foods stores are in affluent, populated areas that coincidentally contain large portions of Amazon’s heaviest spenders. This gives Amazon highly visible points-of-distribution in the backyards of some of its most profitable customers. Amazon will leverage these locations to further reduce shipping times and improve overall convenience for its online shoppers.
If Walmart and Kroger want to keep up, they will have to respond by focusing on what I call the Five Vs – Value, Variety, Venue, Volume, and Availability. (Yes, I cheated on the alliteration for the last one.)
In 2015, Whole Foods was found overcharging customers on pre-packaged foods, which Whole Foods later apologized for but said the overcharges were unintentional. About four weeks after Whole Foods’ apology, social media lit up when a customer found Whole Foods selling $5.99 asparagus water. (The bottles contained three stalks of asparagus with 16 ounces of water.) Whole Foods quickly pulled the product from the only location selling the item, and claimed that the product was not marketed correctly. Regardless of their swift apologies, customers remember. When Amazon announced its intent to acquire Whole Foods, consumers took to social media to crack jokes about asparagus water and Amazon’s acquisition offer of $13.7 billion was only good enough to buy a few bags of groceries from Whole Foods.
Walmart and Kroger stores that surround Whole Foods should heavily promote low price offerings, specifically for popular, health-conscious national brands, and private-label organic products. If Kroger and Walmart can position themselves as a better value for high-quality goods, they will see less customer attrition.
Walmart and Kroger must emphasize it is a one-stop shopping experience and that they can provide unmatched variety for not only product categories but also brands, sizes, flavors, etc. These benefits should be coupled with their low price, high value messaging.
Kroger and Walmart should also concentrate on creating comparable layouts for their respective stores to promote a universal shopping experience. This increases familiarity and reduces trepidation of not being able to quickly locate items and, in turn, gives customers flexibility.
The plus side for Walmart is that they produce yearly global revenues of around $480 billion and have nearly 4,700 U.S. locations. That is a tremendous amount of buying power and even minute changes can bring significant savings. Look for Walmart to maintain pressure on suppliers to cut prices or eliminate costs.
Although Kroger has around 2,000 fewer locations than Walmart, Kroger’s recent sizeable acquisitions of Harris Teeter (227 stores; 2014); Roundy’s (151 stores; 2015); and e-tailer Vitacost.com (2014), will help Kroger negotiate better terms with suppliers and provide additional outlets for Kroger’s profitable portfolio of private-label brands.
Kroger and Walmart will also have to evaluate their stock areas and make them more efficient. Some of this efficiency will be in the form of better space utilization, easier access to unloading areas, automation, and more frequent on-the-floor replenishment for fast-moving items.