Amazon-Whole Foods deal presents wide range of supply chain questions

The recent news of global e-commerce behemoth Amazon acquiring Whole Foods for $13.7 billion was a bit, um, jarring, to day the least, right?

Well, it was for me at first anyhow. Not in the sense that it was surprising that Amazon’s pockets were so deep, I think we all assumed that they could afford this type of investment. It was more so that they went out and acquired such a major household name in Whole Foods in essentially announcing to the world “hey, we are really big, in fact, huge, and we are fully entering the grocery business.”

And, what’s more, at this point, Amazon spending that type of money to truly get into a new business likely won’t raise as many eyebrows, nor be as surprising in the future either, in that if they did it with Whole Foods, then who’s to say they cannot, or will not, do it again in a different sector.

But that is not really the purpose of this column really. A closer look from my perspective is more directly related to what it means from a supply chain perspective.

Supply chain, in this case, being intentionally broad, as it is really serving as a blanket term for everything, including things like transportation, warehousing, distribution, inventory management, and logistics outsourcing, among many other things.  

A report in Fast Company had a very interesting take on the Amazon-Whole Foods deal as it relates to the supply chain

“Just as it has built an operating system for e-commerce, Amazon is now poised to create one for our food supply chain. It would allow [Amazon CEO and Founder] Bezos to offer the highest-quality, safest, freshest, and cheapest groceries anywhere on the planet,” the report states. “The supply chain and distribution challenges that Amazon is already mastering are part of what landed Whole Foods in a position to be acquired in the first place.”

Isn’t that the truth? The investments Amazon has been making as it relates to myriad facets of the supply chain are very significant, whether it be leasing cargo planes, its commitment to free shipping for its Amazon Prime members, or same-day shipping for Prime members, its in- (ware) house robotics, Sunday delivery partnership with the USPS, its intent to get into the emerging last-mile network, its leasing of air freighters, and rumored plans to build out larger-scale transportation and logistics operations to add capacity beyond existing providers, to lower logistics expenses, and ultimately, to offer specialized 3PL services to third parties.

There is more than this, too, of course.

What happens next as it relates to the Whole Foods deal obviously remains to be seen. That was made clear to me by a close friend who owns a New England-based consumer package goods company and has a strong relationship with Whole Foods, his company’s biggest distributor…by miles.

“I am really not sure,” my friend explained. “Time will tell, and it requires a long conversation. Distribution is probably the biggest unknown from where I am sitting. And if Amazon fully gets into the grocery business will it buy UNFI? (Whole Foods’ largest supplier).”

That is another question for another time, but it is something to keep an eye on.

On a separate but related note, while the Amazon-Whole Foods deal was not public knowledge at the time, that did not stop anyone from talking about Amazon’s ever-emerging supply chain presence at last week’s eyefortransport 3PL Summit in Chicago.

Renowned supply chain consultant Jim Tompkins said in a keynote that no retailer or company can make it on its own, not even Amazon.

“52% of Amazon is not even Amazon, it is FBA (Fulfillment by Amazon),” he said. “FBA allows Amazon to double its volume through the economies of scale and get an opportunity for some synergistic collaboration, which allows them to afford a higher level of automation that is economically justified with more local distribution and fulfillment capabilities.”

That said, it’s fair to say the distribution pipeline at Amazon will now be more grocery-centric than it has ever been before. While Whole Foods brings a lot of physical store locations to Amazon, it now also brings more online ordering and fulfillment opportunities, too, something which Amazon has proven to be quite adept at doing.

The next steps in this deal are not yet known, but it looks to be quite a ride from the supply chain and logistics sidelines.