When Internet meets the physical network: Amazon-Whole Foods and the omnichannel revolution

The food distribution industry in the Usa is undergoing an era of massive changes resulting from the development of online services. The rapid ascent of online sales has led the major players in the sector to rationalize the sales network, through the upgrading and the modernization of their operations, the closing down of less profitable stores and the enhancing the e-commerce channel, via trade agreements and M&A, as already observed in the past in a number of luxury sectors. 

The physical sales network is indeed evolving towards smaller and more flexible formats, and shall play a relevant role in the omnichannel strategies of retailers, with a view to a contamination, and not a cannibalization, across the physical and digital spheres. Given their territorial capillarity and proximity to the customer, sales points aim to become not only  a center for managing the orders placed online (from collection to return) but also a place in which new e-commerce customers can be intercepted, through online/physical network cross-offers and on-site advertising. 

In the light of that, it is hardly surprising that Amazon recently closed the acquisition of Whole Foods, a US chain of biological food products present in North America and in the UK with over 450 points of sale, extremely concentrated geographically and directed towards the high-spending consumers. The strategy of the digital giant is to strengthen its “physical dimension” in the food sector (after the opening of the Amazon Go automated format in Seattle) and, above all, better intercept the new trends in the fast growing food market: a place in which from the one hand the shoppers are increasingly looking to buy organic food (an epochal reversal of the position of the US market, which is also the consequence of the dietary education strongly pursued by the Obama administration) but from the other presents an extremely complex logistic to be managed (the maintenance of the cold chain, for instance) and, therefore, faces higher-than-normal delivery costs.

The Amazon's purchase of Whole Foods, aiming at revolutionizing the power relations within the US food chain, clearly outlines the course of the omnichannel revolution, based on the merging of physical and digital shopping. From the one hand the Internet meets the physical network, to meet customer needs more closely. From the other, the offline sphere enters the web, via the M&A of digital companies to acquire expertise and technological infrastructures (as those implemented by WalMart). 

How will Italian retailers behave in the new era of food distribution? We expect that the Italian companies operating in the distribution channel will follow a path similar to that of the Usa. Indeed, the deployment of technological investments and the M&A operations will enable them distributors to reach a dimension, both in economic and organizational terms, adequate to allow them to build an online offer and manage the transition towards an omnichannel approach. It is highly likely that recent market operations by Italian distributor Esselunga are precisely oriented towards this direction.