Oliver Wyman: Amazon's Potential Acquisition of Whole Foods Marks a Major Turning Point in Retail

It would be fair to say that Amazon's potential acquisition of Whole Foods is likely to mark a major turning point for the Retail sector. While initially shocking news, in hindsight it isn't tremendously surprising given Amazon's tentative steps into both the brick and mortar and fresh food arenas. It is going to be fascinating to see how this story evolves and how traditional retailers, wholesalers, and consumer goods companies react over the next year or two. However, there are some things that seem like clear conclusions even at this early stage.

This is not just a real estate play to acquire hundreds of sites in high demographic areas. Amazon will be interested in the Whole Foods business on its own merits. At a stroke Amazon has acquired a nationwide cold chain, deep fresh sourcing expertise, a global sourcing network, and complete credibility in private label food. Amazon Fresh is no longer something to keep an eye on. It is probably any traditional grocer's biggest strategic threat.

You should expect Whole Foods' retail proposition to improve in its own right. While Whole Foods has worked hard on its value perception and price competitiveness over recent years, it still retains some of the "Whole Paycheck" legacy. But this is a strategic move for Amazon, not an equity investment looking for a return on a standalone basis. Amazon's interests will be served best by expanding the appeal of the Whole Foods stores to more customer segments which is going to require eliminating price as the biggest barrier to achieving that goal. Amazon has shown time and time again that it is willing to invest heavily in dominating the categories that it decides to compete in, and there is little doubt that it has the financial capacity to do so. Grocers should be starting to look hard at their pricing strategies yet again, and at the funding sources that can be used to create a war chest. They have about six months.