Last week, Amazon announced its intended fourth quarter acquisition of Whole Foods Markets for $42 per share in cash. The $13.7 billion acquisition is being hailed as Amazon’s big play to enter brick-and-mortar retail. It will also have a playground for disrupting retail. Whole Foods offers Amazon the opportunity to experiment with retail analytics, customer traffic management and in-store preference-matching. It’ll be a testing ground for the unexplored science of “presence marketing,” the layering online and offline buying analytics while tracking customers' movements while they shop.
Amazon’s purchase of Whole Foods isn’t about automating checkout -- it’s about bringing Amazon’s online analytics to the offline world. It’s about gaining insight into customers from their in-store buying habits and blending online and offline in real-time. Amazon purchased Whole Foods to disrupt what we know as retail.
First, it will be about the WiFi. Most of us don’t hop on the Whole Foods WiFi, but my bet is you will have lots of encouragement to do so after Amazon’s acquisition. Amazon filed a patent in 2012 for something called “Physical Store Online Shopping Control” and that patent was awarded last week, just days before Amazon announced it was buying Whole Foods. Although the patent permits Amazon to limit searches on competitive websites while in a physical store, it also allows for the capturing of the customer's location and the collection of customer data while inside a store.
You’ll never be alone in aisle 6 again. Big data will be right there with you. If connected to the store’s WiFi, Amazon.com will be able to capture visitor data as you walk the aisles. Amazon may track your physical navigation and learn your typical route though a store. It can learn if you spend a lot of time picking vegetables or very little at the prepared food aisle. While walking down the cereal aisle, it may send notices of products you usually buy, like a favorite brand of granola for example. Amazon may then suggest turning left to grab some Austrian yogurt, because “it goes great with granola!” If a shopper buys a product frequently, it may suggest it for Amazon.com home delivery. Its point of sales checkout systems will log purchases against traffic patterns and begin to build each customer’s Whole Foods profile just as it has for amazon.com profiles.
When a customer goes to buy some fresh salmon, the Whole Foods team member may be able to see the profile and say, “You usually buy 1 pound, is that how much you want today?” If you walk by the milk fridge and don’t grab a gallon you might get a text that reads “Did you forget the milk?”
Amazon buying Whole Foods is especially brilliant and here’s why. Food retail is a tough business. Margins are razor thin. The big food chains have been consolidating for the past 15 years. Costco, Walmart and Target are now competitors. But, food retail is the best way to collect brick-and-mortar customer data.
Most of us visit a food retailer chain at least twice a week, far more than clothing, sporting goods or home improvement stores. We tend to go to the same food stores because they are close to home or convenient to our commute. We tend to buy much of the same foods week after week because most of us don’t have time to get too creative with breakfast or evening dinners. Our ratio of protein to vegetable to fruit to dairy changes little over time. We tend to be either brand loyal or price sensitive even down to the pancake mix we choose. In a way, our buying behaviors can be traced by what food is in our shopping cart. It can also be an indication of our buying preferences across other product lines -- many of which we buy online.
Retail presence analytics needs a continuous flow of data so that a big data application can identify meaningful patterns. Following how often we shop, in which neighborhood, what we buy, how we navigate the aisles and which services we use will be similar to how Amazon traces your visits to Amazon.com. It tracks frequency, categories, brands, navigation patterns or even propensity to buy the extended warranty then offers lots of suggestions based on its analytics engine. With Whole Foods, Amazon can now have an offline brick-and-mortar network rich with analytics about what we buy and how we shop.
Amazon will soon enable lots of new retail experiences. From a simple “hello” when you enter the store and sales notifications when you pass by aisle 6, to making recommendations on the best glaze for the salmon you just purchased. Link a calendar and Amazon may build you a menu for your dinner party on Saturday and send you a map of where everything is in the store. It’ll be like having Waze for Whole Foods.Interesting to note, Amazon also won a patent for an on-demand clothing manufacturing warehouse indicating that the company could wade deeper into developing its own apparel. What could be next? Buying out Nordstrom isn’t too farfetched.