For Amazon, Now Comes the Hard Part — WSJ -2- – Fox Business
The web titan joins a crowd with its Whole Foods deal; the ‘last mile’ puzzle
With Amazon.com Inc. wheeling sharply into the grocery aisle, the business of selling food may never be the same.
Food retailing was already struggling with low margins and slow sales growth as shoppers shifted buying patterns. New players have swarmed the crowded market, with grocers ranging from giants Wal-Mart Stores Inc. and Kroger Co. to smaller chains fighting to attract consumers, in large part by slashing prices.
And the industry has been struggling to figure out how to sell fresh food online.
Amazon’s agreement to buy Whole Foods Inc. could add to the saturated market as it puts more of its own groceries into the distribution system, while putting new pressure on grocers to figure out how to sell fresh food online lest the web giant beat them. The deal is “a seminal moment in the world of eating,” said RBC Capital Markets LLC analyst David Palmer.
It isn’t at all clear whether the king of e-commerce can do in fresh cabbages what it has done in CDs, books and just about everything else. Amazon and Whole Foods combined still have a small fraction of Wal-Mart’s share of groceries. And Amazon faces a “last mile” logistics problem of getting fresh food to doorsteps that it doesn’t with other goods.
“This is going to be one of the hardest areas for them to get into,” said Kent Knudson, a partner at consulting firm Bain & Co., “because of some of the physical challenges of getting food into people’s homes.”
The challenges for grocers today include a new reality: The days of shoppers filling carts during a big weekly trip to their neighborhood supermarket appear over for now. Consumers are more targeted in their shopping habits. They are less loyal to retailers and more willing to buy groceries online. And they are buying more from stores at two poles: ones with cheap prices, and ones that offer high-quality fresh food, often at a premium.