While recent news of Amazon’s announcement to acquire Whole Foods for $13.7 billion may have come as a shock to some, Amazon has been showing the signs of a company looking to make a big play in grocery for a while. Between online delivery services like Amazon Fresh and Prime Now, and new grocery pickup locations in the Seattle region, it became clear that Amazon was on the verge of making an industry-changing move. It was a matter of starting from scratch versus partnering with an established brand and Amazon made its move by acquiring Whole Foods. To understand which factors drove this acquisition, we looked at questions around customer overlap, spend and geography.
In examining customers who shopped more than once at Whole Foods from June 2016 – May 2017, we found that 81% of Whole Foods shoppers are already customers of Amazon. On the flip side, 29% of Amazon’s customer also shop at Whole Foods. The 19% of Whole Foods customers who don’t shop at Amazon creates a 5% increase in net new customers for Amazon after the acquisition. On top of that, of all Whole Foods shoppers, 52% are Prime members – meaning half of Whole Foods’ customers are already regarded as key Amazon shoppers.
Prime members have a tendency to spend more at Whole Foods. Prime members that are regular Whole Foods shoppers, defined as those who shopped at least 6 times in the past 12 months, spent an average of $1,371 at Whole Foods during the past 12 months. That is $306 more than the non-Prime Whole Foods shopper spent.
Whole Foods shoppers also have a higher propensity for online grocery shopping. 10% of Whole Foods customers have used an online grocery delivery service in the past 12 months. Only 5-6% of Albertsons and Kroger’s customers bought groceries online in the same period, which makes Whole Foods shoppers desirable for a company like Amazon that’s trying to expand their grocery delivery footprint.
While considering online grocery, Whole Foods and Amazon Fresh have little geographic overlap. We analyzed the top cities based on share of spend using credit and debit cards. Excluding cash, Amazon Fresh’s strongholds are New York, Seattle and Los Angeles, while Whole Foods also excels in Chicago, DC, Miami and Texas. By merging together, Amazon has significantly increased its geographic footprint for fresh grocery.