There has been a ton of speculation as to the rationale for this acquisition and in fact there are many reasons for doing it.
The synergy that exists between Prime members and Whole Foods’ shoppers is an, ahem, prime reason. I would proffer a bit of a different spin on this as one of the key strategic reason: they needed to find a short cut to building a manufacturing network and gain instant access to world class product development and one of the most trusted Brands in retail.
CHALLENGES
Amazon has continued to seek new ways to grow the Consumer eCommerce side of the business and clearly identified Private Brands as an important driver of the strategy. To this end they have developed a staple of products/brands to accomplish this. That said, this has been problematic with challenges in building the process and requisite supplier network.
In true Amazon fashion, they did their homework, they experimented, and as always they learned. In particular, they learned how hard it is to be a great product company and the challenges of building trusted brands. In particular, it seems apparent they have found how difficult it is to execute the process of identifying the right partners, of being able to set some direction and build the kind of commitments needed to develop a full range.
OPPORTUNITY
This acquisition allows them to step past all of this. It gives them a great supplier base, strong range and combines the trust in the Amazon Brand wtih the trust consumers have in Whole Foods. Operationally, it allows them to commit to volume requirements helping to de-risk the business helping manufactures engage in product development. Further, it provides them access to a great set of manufactures who are already vetted and bought into the process.
As we have seen from some recent reports, they have already been able to make hay with the existing line, in fact they will probably be able to finance the acquisition via the incremental sales driven by having the brands, manufacturing network and product development pipeline.
This looks like another big inflection point in the Amazon story and part of much larger strategy around Private Brands and the pipeline. Looking forward to seeing how they leverage this in the short run and where this will ultimately lead in the future. If you have not done so already, you might want to book a flight to Austin if you are in the Private Brand business!
