Amazon aims at increasing its consumer base. Acquisition of Whole Foods provides the company with an opportunity to use rich consumer data and to take advantage of the private branded products from Whole foods to provide for consumer needs. Amazon entry in the sales of groceries increases competition for the companies in the same industry including Sprouts and Trader Joe. The may end up experiencing low market share and reduced profits.
Reasons for Amazon acquisition of Whole Foods
Amazon acquisition of whole foods provides the company with access to extensive data on grocery buying patterns and habits. Whole Foods data is rich in that a high number of individuals buy consumables and it is instrumental in Amazon upselling selling marketing strategy (Polacco 14). Offering groceries means that Amazon will know while their customers are almost running out of cereals and they will present the customers with an offer to buy more.
Amazon aims at improving its differentiation strategy by purchasing Whole Foods. Stocking consumables allow Amazon to increase the diversity of their offers (Polacco 14). The company differentiation strategy takes the form of understanding the customer needs and shopping behaviours with the aim of creating a long-lasting relationship with customers.
Amazon is interested in the Whole Foods private brand. Whole foods offer a large variety of their processed and packed foods, and it is unique in the retail market characterised by a high level of sameness. Whole Foods fits in Amazon aim to offer unique products at the best prices (Polacco 16). Importantly, the whole foods containers are a marketing tool themselves since the label reminds the consumers to buy from whole foods a second time.
Consequences of Amazon entry to other firms in the industry
Entry of Amazon in grocery industry means a reduced market share for the companies offering similar products. Amazon uses analytical models enhancing the company capability to predict the goods that the customers are interested in, the amount they want and the time that they are in need. Importantly, the company has an expansive customer experience that allows it to achieve higher sales than any other company in the same market.
Trader Joe and Sprouts are going to experience decreased revenue comparing to the past years' sales. Research reveals that about ten per cent of Trader Joe customers and eight per cent of Sprouts customers purchased at Whole foods between 28 August 2017 and third September 2017, immediately after acquisition of the Whole Foods retailers (Diehl 2). A decrease in customer base means a decreased level of income for the competing companies.
The retails are forced to focus on creating their differentiated products to compete favourably with Amazon. Trader Joe and Sprout have to increase their effort in packing and processing groceries to improve their private branded products in the market (Diehl 1). Importantly, they have to differentiate their products from the ones stored at Amazon to make consumers prefer their stores to Amazon.
Sprout and Trader Joe companies may be required to adjust the prices of their products. Amazon focuses on charging their customers lesser amount compared to similar retailers. Importantly, the company distribution system and stores ensure that it costs the customers less to get the products delivered (Diehl 2). Companies will have to reduce their prices to prevent customers from transferring to Amazon.
The companies are going to be on the lookout for means to achieve operational efficiency. For the companies to charge low prices to the final consumer and maintain their profit margins, it will be essential to look for ways to reduce the cost of marketing and distribution (Amornmekin 45). Just like Amazon, the companies will adopt the use of online payments to reduce the number of sales and marketing officers.
Overall, Amazon acquisition of Whole foods provides the company with operational advantages including the opportunity to use already available data. Amazon interest in Whole foods arises from the alignment of the Whole foods goals with Amazon goals since Whole Foods focus on private branded products. Companies in the same industry will be forced to vary their conduct of business including adopting a differentiation strategy and use of technology in transactions.
Amornmekin, Ekaphak, and KomsanSuriya. "Effects of Increasing Foreign Shareholding on Competition in Telecommunication Industry." The Empirical Econometrics and Quantitative Economics Letters 3 (1), 2014, pp. 45-54.
Diehl, Kristen, and Bill Bishop. Strategic Analysis of Amazon Madison Morgan November 16, 2017, MGMT 275. 2017, pp. 1-2
Epstein, Marc J. "Adapting for Digital Survival: Society, Technology, and Business Are Changing. Are You and your Company Leading or Lagging?" Strategic Finance 99 (8), 2018, pp. 26-34.
Polacco, Alex, and Kayla Backes. "The Amazon Go Concept: Implications, Applications, and Sustainability." Journal of Business & Management 24 (1), 2018, pp.14- 28.
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