By Erica E. Phillips and Jennifer Smith
Amazon.com Inc.’s purchase of Whole Foods Market Inc. could fill an important logistics gap for the online retailer, providing hundreds of stores perfectly positioned to serve as pickup and delivery hubs for urban customers.
For more than two years, Amazon has been building out a network of urban warehouses, located in highly populated neighborhoods, and offering “Prime Now” delivery of food and sundries within a one- or two-hour delivery window. They are essentially large convenience stores, without the customers.
Adding the more-than-430 stores in Whole Foods’s network would expand Amazon’s current neighborhood network by a factor of at least five, logistics experts said Friday. “It’s going to give them little warehouses all around the country in some of the big markets,” said Michael Knemeyer, a professor of logistics at Ohio State University’s Fisher College of Business.
Prime Now warehouses are around the same size as grocery stores, or slightly larger, and in urban areas where Amazon shoppers live and work, and delivering mostly same-day orders—some within one hour. Inside, there are pallets of bulk items like paper towels and cases of soda, shelves of produce and a few freezer and refrigerator aisles.
That is a contrast with the behemoth fulfillment centers that are the backbone of Amazon’s extensive and expanding logistics operations. Those are located in far-flung suburbs and stock a much wider array of goods, fulfilling and shipping orders for delivery within two days or more.
One potential immediate benefit from buying the grocer is the chain’s refrigerated storage areas, which would have been expensive to install across a network of basic warehouses, experts say, as Amazon seeks to build out its own grocery business.
“Setting aside food, the larger opportunity to build out what many refer to as the final mile to the consumer is now in sight,” said Dave Beaird, a supply chain consultant.
“Will these locations become mini-fulfillment centers to help execute local deliveries of not only food but also other items? Will these locations become hubs for customer pickup, decreasing some traditional transportation last mile costs? Or will they simply remain as they are today? Which is very hard to believe,” he said.
Meanwhile, the partnership with Amazon may mean Whole Foods doesn’t need to rely as heavily on its storefronts.
Recently, vendors on Amazon.com have increasingly been filling orders from their own facilities or those of third-party logistics providers, with Amazon never holding that inventory in its own fulfillment centers. Under that strategy, Whole Foods may see many of the products it stocks one day shipped to customers in much the same way, skipping the store stock room entirely and heading directly to customers.
“The opportunity to do direct to home [delivery] with Whole Foods, as well as the suppliers to Whole Foods, could become dramatic,” said Benjamin Gordon, managing partner at BG Strategic Advisors LLC. “You could keep the stores, but all the growth might come from distribution center to home.”