Online retail giant Amazon announced this morning that it's agreed to buy the organic grocery chain Whole Foods for a reported $13.4 billion. For the mammoth e-commerce company, the deal would clear a massively wide entryway into the brick-and-mortar space. For Whole Foods, The New York Times notes the deal affords it the ability to stave off pressure from investors incensed by languid stock prices. The deal is still pending.
WHY IT MATTERS
Neither company here is exactly new to the beer business. Whole Foods has established a reputation for building shelves bolstered by strong craft offerings, and has even launched a house brand of its own in Houston, Texas. Amazon has been exploring online alcohol delivery services in a number of different markets, to varying degrees of success and failure.
Viewing this deal through beer goggles, then, raises an obvious question: What does this deal mean for the brewing industry? Right now, any answer to that is a speculative answer. But hey, it’s Friday, so we called up Bart Watson, staff economist at the Brewers Association, to do some forecasting.
Although he was quick to note the deal hasn’t closed, Watson did say the merger has the “potential to have a lot of ripples in beer,” both as it relates to the two companies involved as well as the burgeoning tech-booze sector being driven by online delivery apps like Drizly. But to answer what it might mean for beer, he says, “You’ve got to try to read the tea leaves about what this deal means overall.”
“Is this about Amazon broadening e-commerce to get into grocery stores? Is this about Amazon trying to build brick-and-mortar? Is it a combo of the two?” asks Watson. “Or is this something else new, something different that we haven’t even thought about? Amazon has the capabilities to do some interesting stuff. They do offer the ability to direct order stuff, and now they’ve got local stores they can pair that with.”
So what’s that mean for the digital and physical beer aisles the two sides operate?
For Amazon, Watson says, Whole Foods could yield new beer sales data and theoretically provide hundreds of new physical locations from which to deliver beer. On the other hand, Whole Foods could possibly make huge inroads into the online beer marketplace.
“Amazon is the dominant player in e-commerce and has a pretty ubiquitous platform for ordering things over the web,” Watson elaborates. “If and how the Whole Foods side can leverage that, have more people touching their stores, getting eyeballs, that’s clearly how it helps them.”
Meanwhile, for a lot of growing regional craft brands, chain sales have become critical to growth—places like Costco, Kroger, even Target. If this Amazon deal can leverage Whole Foods' reputation for great craft selections, or even hyper-local selections, we could see a lot more paths to market for small producers. That, of course, is assuming those paths stay somewhat neutral, which is always a challenge in the beer industry.
Furthermore, the deal could affect the upstart online alcohol delivery industry being spearheaded by the likes of the aforementioned Drizly—the types of companies Watson says have sort of “created the fourth tier.” Indeed, that industry is growing rapidly. As we reported back in November, online alcohol sales have grown at a near 12% annual growth rate over the past five years, driven in large part by demand for craft beer. But, that might not be of solace to smaller online delivery services because, as Watson says, “people don’t really care where they get it.”
“I can ask Alexa and get it pretty quickly,” he adds. “Certainly there’s that integration.”
Either way, this may be a sign of things to come.
“E-commerce was going to have to come to the beer business more and more,” says Watson. “This might be the first big domino to fall.”