“No, Sally, your food doesn’t come from Amazon, it’s produced by farmers and ranchers” – someday this may be a mother’s answer to a child’s question about where her food comes from. Amazon, the giant e-retailer, recently announced a deal to purchase Whole Foods Market, the leading organic supermarket chain, for almost $14 billion.
Increasingly groceries will be sold online and delivered to the door or a distribution point for pickup. According to the Food Marketing Institute, online sales of food are expected to reach 20 percent of grocery sales by 2025, amounting to $100 billion. Amazon already has an online grocery presence through AmazonFresh, but a purchase of Whole Foods would greatly raise its profile.
The deal has ramifications for the entire food industry, including farmers. If Amazon’s past is any guide, it may be a bumpy ride. Amazon started as an online bookseller, and it turned the industry on its head for writers, publishers and booksellers.
Amazon’s aggressive approach led to the closing of many independent booksellers, along with Borders, a major bookstore chain. Barnes & Noble has barely survived. It is no wonder that Amazon’s Whole Foods announcement set off sharp declines in grocery store stocks on Wall Street.
Amazon won’t take over grocery sales as easily as it did book sales, however. Amazon’s food sales are miniscule compared with the overall market, which is quite fractured. Wal-Mart leads the way with 14.5 percent of food and grocery sales, and Kroger is next with 7.2 percent. Whole Foods has a 1.2 percent market share, and Amazon only 0.2 percent of the grocery market.
Amazon’s success is predicated on low prices, quality and wide selection. It’s also known for excellent customer relations. But the same good feeling doesn’t exist with all suppliers and industry trade groups. Whole Foods sources fresh produce from many small and midsize farms across the country. Producers could feel squeezed if Amazon, which would keep the Whole Foods name, pays them less. Amazon also is in a position to try to dictate other terms to suppliers, including production practices.
In time, Amazon could force out some of the smaller supermarket chains that serve small cities and rural areas, as sometimes happened with Wal-Mart. It could even hurt sales at farmers markets. Amazon is keeping Whole Foods supermarkets and may use them as distribution centers for its recently introduced ready-to-cook meal packages.
A century ago, A&P pioneered the supermarket in America, and now it’s Amazon that is trying to make a big change in the way we shop for food.
—Stewart Truelsen, American Farm Bureau Federation contributor
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