Amazon acquires Whole Foods Market
Amazon (AMZN) announced on Friday that it was acquiring Whole Foods (WFM) in a move to extend its reach into Grocery.
We have long said that Grocery is one of the last areas of e-commerce penetration and although many have tried (Ocado for example) most have failed with a pure play e-commerce offering. This is mainly due to the complex nature of the supply chain and the fact that a large part of the product base is perishable.
We have followed a number of “foodtech” businesses for the last 5-10 years and competing with the integrated nature of traditional store based retail has been very hard.
The market view is that Whole Foods give Amazon access to both local distribution hubs (historically called stores) and a very integrated and unique supply chain. Whole Foods has a strong presence in North America and a few stores in the UK but has great coverage in the US in demographically richer neighbourhoods (Whole Paycheck).
But for FMCG brands the creation of Amazon as a retailer and a potential competitor will be an interesting area to watch. We suspect a number of brands may have to increase there own technology investment and this might be based on so called “acquihires” of struggling startup in the sector.
Good news for brands – but not fantastic news for investors who have paid high multiples to fuel the burn within a number of these companies.
Long term we think this is great for the consumer, great for Amazon shareholders and fantastic for brands that have well developed e-commerce capability – allowing them to leverage the investment that Amazon is making in this sector. Not great for Walmart though!
Blue Apron (www.blueapron.com) one of the US leading meal kit companies filed its S-1 on Friday giving us some insight into the burgeoning meal kit delivery market.
Although we like the sector, in general, we still feel that churn is the major enemy within this area. Working on around 30% gross margin is fine but 3-year cohort data shows $939 of LTV. This offers around $280 dollars of contribution before marketing costs.
2016 marketing costs seemed to come in around $144 per customer making a post-marketing contribution (before overheads) of $136. This is spread over 3 years so the cohort is delivering $93 per annum, giving marketing payback at around 18 months.
Everyone in this sector has raised vast amounts of investment and with around $745m in revenue in 2016 Blue Apron is definitely a business of scale. Losses have narrowed but to keep the churn rates in check the business needs to keep investing heavily in marketing.
You can read the full S-1 here.
Kantar Worldpanel have released new research about the level of Grocery e-commerce adoption both in the UK and worldwide.
The UK hass grown from 6.7% to 7.3% in 12 months, we alsso see evidence of both higher value basket sizes online compared with similiar offline purchasses.
We expect to see this continue. Interestingly, South Korea is at 19.7%, so plenty scope to grow within the UK.
Full article: https://www.kantarworldpanel.com/en/PR/UK-online-grocery-sales-reach-73-market-share-