Enterprise lessons from Amazon and WholeFoods

A woman walks past a Whole Foods Market in Washington, DC, June 16, 2017, following the announcement that Amazon would purchase the supermarket chain for $13.7 billion. Amazon is once again shaking up the retail sector, with the announcement it will acquire upscale US grocer Whole Foods Market, known for its pricey organic options, in a deal that underscores the online giant’s growing influence in the economy. SAUL LOEB / AFP

The biggest news in technology recently has been Amazon’s acquisition of the premium grocery chain – Wholefoods – for $13.7 billion. The acquisition was unexpected, and it came as a surprise to a lot of people. This takeover is surprising because Wholefoods is a niche business selling healthy primarily organic food to upmarket customers. Their shops are not as ubiquitous as other retail chains. The first thing I mentioned on Twitter when I heard the news was “Amazon is buying a demographic” and not just a business.

One of the most profitable parts of Amazon’s business model is it’s Amazon Prime subscription model where preferred customers pay an annual subscription to enjoy unique fulfilment as well as access to free online content. For those that can afford it, the benefits far outweigh the subscription costs. It, however, creates an inverse loyalty relationship. Prime customers always think of buying from Amazon first because they have already somewhat invested in Amazon. They rarely, if ever, consider other options. I know this because I am a Prime customer and have been for many years.

An interesting feature of Amazon Prime is the ability for you to add other family members to your account at no additional cost and they also enjoy full Prime benefits. It is in the interest of Amazon for my other household members to be Prime members because they are more likely to make e-commerce purchases while my main reason for actually paying for Prime subscription is the free video content. Amazon has been blessed generously with my wife’s shopping. She buys everything from diapers to shoes on Amazon. Having other family members in my household linked to my account also makes Amazon understand my home shopping habits better. It has always been a data game.

Shopping at Wholefoods is a lifestyle. It is like an addiction. A friend told me that any time she is in America, the first thing she does is to search for their nearest store. Wholefoods customers are the perfect Amazon Prime demographic. They are affluent and loyal. The grocery store outlets are also typically located near upmarket neighbourhoods, so they give Amazon a beachhead into those neighbourhoods.

A key benefit one also enjoys as a Prime customer is the free delivery of purchases to Amazon lockers everywhere. Amazon lockers are temporary storage locations where goods ordered can be delivered. They have been particularly effective for people who would not be at home or a delivery location all the time. I am sure the first thing Amazon would do is to install Amazon lockers at every Wholefoods store.  Doing this would greatly simplify their logistics and lock the customers in even further. Secure lockers in a trusted location is a plus.

Taking the lessons back home
I wonder if there are Nigerian parallels to Amazon’s move to bridge online and physical retail. It turns out that model may be the best for our markets. Some niche e-commerce firms are doing that right now and achieving great success. While some existing commerce companies like Gloo and Yudala have adopted a strategy of having physical outlets, local luxury goods companies who had primarily been offline are also seeking out new markets online and achieving tremendous success.

Ewaen Sorae is a second-generation entrepreneur from Edo State. He decided to do something different after he got his MBA from the UK. He launched his company called “E-Sorae Luxury” selling luxury household goods. The company started offline with a shop located at the upmarket SilverBird Galleria in Abuja, and he did very well there. A lot of his products ended up in the leading Nigerian hotels as their suppliers patronised him. It was a successful niche, and he seemed to know what his customers wanted.

The business tried to go online as well, but the launch of their online initiative also coincided with the rapid ascent of Nigeria’s electronic commerce giants, Jumia and Konga. They decided to work with them rather than become competition. The e-commerce marketplace model by those companies quadrupled E-Sorae Luxury’s sales eventually. Going online gave him a lot more insight into who his actual customers were. He decided to move his business closer to them in Lagos. He also discovered that having an offline location to compliment his online sales was always an excellent idea. It was a very successful experiment for him as is the same model Argos has adopted in the UK.

One key thing that helped his business grow more than anything else was online advertising. He didn’t just depend on being in the e-commerce marketplaces alone. He still had his website and did his fulfilment as well as online advertising. He started with paid Facebook adverts and saw the effects in real time. He began learning how to hack the growth of his business by doing better targeting of his advertising. He also learned much more about his customers and their preferences just from doing this. He discovered that one line item that did very well online was beddings, and he decided to set up a separate business to fully take advantage of the Nigerian market for beddings. The new company he called Bedsheets Express. Bedsheets Express did so well that he is considering closing up his first business to focus more on that line. He found out his niche retail demographic. He would not have done this well if he remained offline alone. A lot of other offline businesses are now following this same model. The nature of Nigerian retail is going to be very different in a few years.

I am sure that if Amazon were to launch in Lagos tomorrow, they would adopt a strategy that best suits our markets. They would also have physical stores as outlets, and Amazon lockers or neighbourhood stores would probably be the primary delivery mechanism. They probably would acquire companies like BedsheetsExpress, Gloo or Yudala that have figured this out.

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