What does Amazon + Whole Foods mean for beer sales?
The news that the internet retailer Amazon was to buy the supermarket chain Whole Foods and its 460+ stores for nearly USD 14 billion made big waves in June 2017.
While the deal should make other grocery chains like Walmart tremble in their socks, not least since they saw their share prices plummet upon publication of the transaction, the implications for the beer business were not immediately clear.
It has been no secret that Amazon has been interested in entering into the brick-and-mortar space itself via an ambitious, multi-pronged approach to physical retail locations. In the US, Amazon already operates several bookshops as well as pop-up kiosks, where it sells its electronic products to consumers. Meanwhile, in Seattle, Amazon continues to pilot its Amazon Go convenience store concept, which allows customers to buy snacks, beverages and other goods without having to go through checkout lines.
While these aren’t grocery store formats, it needs to be borne in mind that Amazon has pushed into food and beverages sales with the help of its Prime Now platform. Thanks to the Three Tier System, there are state-by-state restrictions on alcohol sales. But in March 2017, Amazon began delivering beer and wine, which had been ordered online, in the cities of Cincinnati and Columbus, Ohio.
Lawyers say, the instant delivery business requires a distribution centre fairly close to the consumer. Because of restrictions on selling alcohol across state lines, it has been unclear how Amazon would be able to effectively compete on a nationwide basis.
The acquisition of Whole Foods could change the game. By acquiring Whole Foods, Amazon immediately becomes a major beer and wine retailer. Whole Foods had previously announced long-term plans to expand to 1,200 stores in the United States.
By combining its Prime Now programme with one thousand or more retail locations, Amazon would have plenty of “distribution” centres close to consumers. It would fundamentally “crack the grocery home-delivery game” as one commentator put it.
Of course, the US food retail industry has been a battlefield for decades. But the Amazon/Whole Foods combination might create a substantial new challenge to physical food retailers if Amazon succeeds at aligning competitive prices and speedy delivery services (where permitted by state law).
Given that craft brewers have already successfully dismantled the Three Tier System in many states by receiving permits to self-distribute, these self-same state governments could find it hard to protect their retailers from this new form of competition.
Observers say it is doubtful that beer distribution was the driving force behind Amazon’s bid for Whole Foods, but it will have a material impact on the beer industry and the relationship between the three tiers.
