Amazon Acquires Whole Foods - Now What?

I wrote this article on the morning Amazon announced they were acquiring Whole Foods. Many reporters and industry analysts quoted from this paper resulting in portions of the article being utilized in different news stories globally.

Readers asked me to incorporate some of the notes at the bottom of the page into the article to add clarity and to expand on several topics. The article was edited as requested.

What you are about to read is my opinion on the impact of Amazon announcing they intend to acquire Whole Foods. The press and students may utilize content from this article for their own purposes.

This article is a result of research I conducted in 2012 and 2013 related to the global grocery industry. I conducted the research while I was working for Deloitte and earning my third Master's degree; a Masters of Science in Merchandising. As part of my studies, I wrote a paper in 2013 titled A Beautiful way to Save Woolworths where I applied game theory to the grocery retail market in Australia. The article can be found here: https://www.linkedin.com/pulse/beautiful-way-save-woolworths-brittain-ladd/

During my research, I evaluated Amazon's grocery capabilities and determined that the only way Amazon would ever become a force to be reckoned with in groceries would be if they made an acquisition of a grocery retailer. In the paper about Woolworths, I recommended that Amazon acquire Whole Foods or HEB. I chose Whole Foods due to their expertise in fresh food; brand reputation for quality; national presence; fairly low number of stores giving Amazon an ability to scale the company in their image; and the ease by which Amazon could take command and control of the company.

In addition to my research paper on Woolworths, I wrote a 10-year strategy for Amazon's grocery and food ecosystem as part of my research. I outlined acquisitions and strategies Amazon could utilize to surpass Kroger to become the number two grocery retailer in the United States by 2027. I'm confident the core principles and strategies I wrote in my 10-year strategy document will mirror most of what Amazon does with Whole Foods in the coming years. Amazon executives and associates who reviewed my strategy agree.

I believe Amazon acquiring Whole Foods is long overdue. Congratulations to the team at Amazon responsible for making the acquisition a reality.

Why Does Amazon Want to be in the Grocery Business?

It is estimated that the combined grocery and beverage market in the United States is $800 billion making the industry an attractive target. The food industry is valued at $1.5T making food overall an important and attractive market. Amazon didn’t launch AmazonFresh or acquire Whole Foods simply because they want to be able to sell groceries, Amazon acquired Whole Foods because they understand the following:

Food is a must-have for all consumers; 20% of income is spent on groceries for the average consumer. The retailer that does the best job of meeting the grocery/food needs of consumers to the point where customers become loyal to the retailers' brand, will provide that same retailer with an opportunity to sell additional products. See where I’m going with this? If consumers turn to Amazon for groceries, Amazon will incentivize those customers to turn to Amazon for apparel, shoes, home furnishings, furniture, media, electronics, books, and other products and services. Amazon in effect will become an integral part of the consumers existence. Utilizing AI and analytics, Amazon will learn the individual shopping habits and needs of their customers to the point where soon, Amazon will be able to anticipate what customers require, especially when it comes to groceries. When combined with a last mile delivery and distribution network capable of delivering groceries to customers faster than they can travel to shop for groceries on their own, this is when Amazon becomes unbeatable. Note to grocery executives: your business models will soon become irrelevant.

All grocery executives should read the following words carefully: Do not judge Amazon Whole Foods based on what they can do today, judge Amazon Whole Foods on what they can achieve over the next 10 years. Amazon designs and implements category strategies for 10 years whereas the vast majority of grocery executives still plan and think in terms of three to five year increments. Amazon will re-imagine the grocery experience which means they will change the rules of the game as they relate to the current state grocery industry. Unless grocery executives can pivot in their thinking, they will lose market share to Amazon Whole Foods much faster than they believe is possible.

The Benefits of Amazon Acquiring Whole Foods and What to Expect

The Achilles Heel of Amazon is their lack of a best-in-class grocery distribution network, their lack of ability to manage and provide fresh food cost-effectively, and their lack of knowledge on how to operate grocery stores. The acquisition of Whole Foods solves these and other problems. Amazon will leverage the acquisition of Whole Foods to rapidly carve out a leadership position in groceries. To consider this a shot across the bows of Walmart, Target and Kroger is an understatement.

IF the acquisition of Whole Foods becomes a reality, I believe the current CEO and founder of Whole Foods, John Mackey, will remain at the helm of the company…for a limited period of time. Mr. Mackey failed to realize that Kroger and other retailers were accelerating their focus on organics but more importantly, he failed to realize that organics were being turned into a commodity. As the value of Whole Foods to consumers was decreasing, Mr. Mackey kept running the company as if Whole Foods was a premium brand with exclusive products that warranted much higher prices than products found in traditional grocery stores. As Whole Foods continued to lose market share and revenue, John Mackey didn't know how to pivot and devise a strategy to make the company more competitive and sustainable. Amazon acquiring Whole Foods will save the company from a painful demise.

There is no value to Amazon in keeping the status quo at a failing retailer. Once Amazon has ownership of Whole Foods, I estimate they will do the following based on my research and experience leading the expansion of AmazonFresh and Pantry worldwide:

Pricing - Amazon is about adding value to customers with a focus on selling products at reduced prices. Amazon cannot allow Whole Foods to remain “Whole Paycheck” as doing so will limit the ability of the acquisition to drive additional revenue to the bottom line and attract more customers to Amazon. Amazon will significantly reduce prices on items stocked within the stores starting the first day they gain ownership of Whole Foods. I estimate Amazon will reduce prices up to 50% for certain items and strive for an across the board cut of prices between 15% to 25% to send a clear message to consumers that the era of "Whole Paycheck" is over as well as to send a message to competitors that Amazon is in it to win it.

Amazon will quietly raise prices after the first two to four weeks of operation. Amazon's goal will be to try and keep prices low on the products with the highest inventory turns such as bananas, milk, baked goods, etc., in order to create the perception Whole Foods has low prices. A challenge for Amazon Whole Foods long-term will be how aggressive to be on pricing. Amazon clearly understands that they can sell some grocery items at a loss and make up the losses by converting customers to become Prime members, and giving incentives to Prime members to make additional purchases on Amazon.Com annually. However, long-term, Amazon must implement the optimal pricing strategy or risk alienating and confusing customers; no easy task.

Margins - The grocery business has very low margins; on average between 1% to 3%. The focus of my third Master's degree was Merchandising and Operations Research. Two topics I focused on were margins and store operations and during my research, I discovered that Amazon has a unique opportunity to achieve double-digit or near double-digit margins through their business model and by applying a science-based grocery retail strategy. I wrote about my research in my paper A Beautiful way to Save Woolworths. I stand behind my comment that Amazon can achieve much higher margins than other grocery retailers and I believe the acquisition of Whole Foods will prove I'm right.

Procurement - I disagree with analysts who state that Amazon lacks purchasing power for groceries even with the acquisition of Whole Foods. Amazon will centralize procurement and create a Collaborative Procurement Program whereby they pool their total spend for groceries globally, and leverage the combined purchasing power to negotiate best-in-class pricing. Technology and supply chain optimization will be leveraged to reduce costs and complexity within the procurement process to drive additional savings.

Assortment - Amazon will reduce the focus on organic products and stock products found in other large grocery stores such as Kroger, Publix, HEB, and especially Walmart. Let me take this opportunity to remind everyone that the reason why Amazon could acquire Whole Foods is because Whole Foods has been losing significant market share. Kroger and other retailers have increased the number of organic products within their stores while undercutting Whole Foods on price. Grocery analysts labeled Whole Foods "a failing retailer". Amazon simply cannot maintain the status quo in terms of assortment or pricing. Centralizing the decision-making process for choosing which products to stock on shelves will be one of the first things Amazon will do so that stores are standardized as much as possible. Amazon will eliminate local sourcing giving retailers such as Kroger and HEB an opportunity to actively pursue emerging and local brands. Sooner rather than later, Whole Foods will exist in name only with little resemblance to the Whole Foods of today.

Private Label CPG - Although not well known, Amazon has nearly 30 private label brands across apparel, furniture, and food. Acquiring Whole Foods will give Amazon control over Whole Foods 365 discount private label brands increasing Amazon's total private label brand count. I believe many analysts underestimate the potential of Amazon's private label categories. As the center for online demand generation, Amazon serves the needs of hundreds of millions of customers. Add Whole Foods into the mix with their physical retail presence and millions of customers, and it's easy to see how quickly Amazon will be able to generate interest in their private label range of products. An example of what Amazon can accomplish is provided by Walmart who introduced their private label line of dog food, Ol' Roy, which quickly passed the leader in dog food, Nestle Purina. Ol' Roy is the number one selling dog food brand in the United States. I estimate Amazon will create similar private label success stories. It is not beyond the realm of possibility that Amazon will become a de facto CPG company eventually challenging Unilever and P&G in many categories.

Fresh Food - No category is more challenging to manage in groceries than fresh food. In addition, fresh food is a category that most customers won’t order online as customers want to Inspect and Select products such as meat, milk, eggs, fruits, vegetables and breads; the 20% of lines that generate 80% of sales in a grocery store. Amazon can now expand their focus on fresh food and, by leveraging Whole Foods stores to fulfill online orders closer to the customer, Amazon will be able to convince more consumers to order fresh food online driving increased sales. Note to suppliers of Whole Foods - your world is going to change very quickly. Amazon will seek out suppliers from other countries and within the United States that can sell products that technically can be labeled as organic but in reality, will be of lesser quality than the products currently sold in Whole Foods. Amazon will insist that suppliers go above and beyond in providing Amazon with near perfect appearing fruits and vegetables while insisting suppliers reduce their prices. Amazon can operate Whole Foods at a loss for only so long hence the need to purchase products at a lower price as Amazon will attempt at keeping prices low for specific products while still earning some profit. It won't be easy. Prime Now will be critical in convincing consumers to order fresh food online.

Competition - As I outlined above, the retailer that wins in grocery will win in retail. Although Whole Foods primarily attracted high-end consumers with expensive tastes, Amazon will design and implement a grocery ecosystem capable of meeting the grocery needs of customers across all income levels and demographics. Amazon will compete on price, quality and convenience. Amazon is fully aware that every grocery customer they convince to defect to Whole Foods will more than likely become a Prime member (unless they already have a Prime membership) and increase the number of purchases they make from Amazon.

Discounters - Acquiring Whole Foods provides Amazon with a business model to begin attacking or at least competing against Aldi and Lidl. Amazon will expand the Whole Foods 365 discount retail model with a focus on selling private label products for increased margins and to attract value shoppers. Amazon will also sell 365 branded products online. Whole Foods 365 has been received with mixed reviews by customers and analysts. Amazon will only continue with the 365 brand if it is successful in delighting customers. If Whole Foods 365 does not meet expectations, Amazon may choose to shutter all Whole Foods 365 stores and either launch a new smaller store format; create a section within Whole Foods stores specific to discount groceries; and/or duplicate the Lidl and Aldi discount model online. Amazon cannot ignore the threat of Lidl and Alid, but even Amazon may struggle to come up with a format and strategy to beat Aldi and Lidl.

Technology and Devices - Amazon has become an innovation machine when it comes to electronics such as Kindle, Fire Tablets, and especially Echo. Amazon will introduce sections within most, if not all, Whole Foods stores that will resemble a smaller version of an Apple Store. I estimate that Amazon will expand this concept to Kohl's and potentially other retailers. Amazon will fully integrate their stores with the Internet of Things while utilizing their skilled programmers to develop technology greatly simplifying the grocery experience. For example, instead of customers wandering through stores trying to find the items they want to purchase, smart cart technology will navigate customers to the exact location of each product they want to buy. Amazon will eventually leverage the technology they designed for AmazonGo within Whole Foods stores. Amazon has no interest in running stores with robots. Amazon has no interest in running stores without store associates. Amazon will increase their focus on using Knowledge Workers in their stores to increase the customer experience. It is unfair for critics of Amazon to claim that Amazon wants to destroy jobs. Such criticism is false and unwarranted.

I don't want to give the impression that only Amazon can innovate. Walmart and Jet.Com are very innovative companies. However, although not well-known, Kroger has their own "Skunk Works" focused on building in-store cameras, Scan and Go handheld devices, and shelf displays for pricing and end caps. Kroger is by far one of the most innovative grocery retailers in terms of designing in-store technologies.

AR/VR - Amazon has announced their intentions to rapidly expand into selling furniture, home furnishings, and appliances online. A challenge faced by retailers is that furniture and appliances are big bulky items that take up a lot of space. Amazon will utilize AR/VR booths and stations inside select Whole Foods stores to help customers visualize how specific pieces of furniture and appliances will look inside their homes. Amazon will leverage AR apps to allow customers to use their phones to visualize a purchase with the goal of increasing conversion. Amazon will also make it easy for customers to be scanned for the purpose of identifying their exact clothing sizes. Amazon will soon offer customers customized clothing at near off-the-rack prices.

Pharmacy - Amazon remains committed to selling prescription drugs online but Amazon will evaluate how to leverage Whole Foods stores to accelerate their pharmacy ambitions. I want to reinforce what I stated in my paper A Beautiful way to Save Woolworths - I won't be surprised to see Amazon acquire a small to mid-size pharmacy retailer as it will accelerate their Omni-channel pharmacy capabilities and increase the size of Amazon's ecosystem. Pharmacy is no easy task, even for Amazon.

Store Layout and New Format Stores - Amazon will scale their grocery business and Amazon will create an ecosystem of stores of varying formats. For example, Amazon has an opportunity to copy the success of the French retailer Picard which sells only frozen meats, vegetables and deserts. Although fresh food is the rage, frozen will grow in importance as consumers demand a better methodology for buying meat and avoiding contamination scares such as E-Coli. Amazon has an opportunity to re-imagine the customer experience in meat, fruits, vegetables, dairy and other categories within Whole Foods stores, as well as launching stand-alone specialty formats if they so choose. Based on my research, Amazon has the flexibility to build anywhere from several hundred stores to several thousand stores in order to scale their grocery and food ecosystem. Amazon is only limited by their imagination when it comes to their food ecosystem. As for the name Whole Foods, I estimate Amazon will re-brand Whole Foods stores in the near future to a name that will put the focus on the Amazon brand such as Amazon Prime Grocery.

I believe Amazon will work diligently to integrate Pantry, AmazonFresh, Subscribe and Save, and Whole Foods into an easy-to-use platform for customers within the first 12 to 24 months. Amazon's goal will be to create a shopping experience whereby customers can buy groceries through multiple channels, as well as create an online and in-store warehouse club model to compete directly against Costco. Amazon could acquire Boxed Wholesale to accelerate their bulk business. I estimate AmazonFresh will slowly but surely be phased out over a period of time as Prime Now becomes the primary mechanism for grocery delivery. I wrote about the need for Amazon to simplify and integrate their grocery business in my paper A Beautiful way to Save Woolworths.

Order Fulfillment at Stores - Amazon will scale their Click and Collect model and utilize AmazonFresh and Amazon Flex drivers to deliver groceries to direct to customers. The days of Whole Foods utilizing Instacart will soon come to an end. Amazon will design a state of the art distribution model to support scaling groceries nationwide. Leveraging Whole Foods stores to fulfill online grocery orders closer to customers will reduce last mile delivery costs. Prime Now will be leveraged extensively to make 2-hour deliveries of products from Whole Foods to customers giving Amazon a competitive advantage. Prime Now deliveries may potentially be expanded to include delivering packages to trunks of cars or lockers.

Lockers - Whole Foods store locations are an ideal fit for Amazon Lockers and customers of Whole Foods should expect to lockers within select stores by the end of 2017, early 2018 at the latest. Amazon will want to leverage lockers in Whole Foods as an alternative to leaving packages unattended at customer homes. Amazon may even choose to provide customers with a locker that can be easily installed outside a customer's home, for safe and secure package deliveries. Amazon will more than likely seek to implement their lockers in apartment complexes for delivery of groceries and other packages, with a goal of gaining greater control of the customer experience.

Loyalty Cards - Amazon will leverage Amazon Prime memberships as their preferred loyalty program. This immediately rewards current Prime members and provides an incentive for non-Prime members who shop at Whole Foods to buy a Prime membership. I envision Amazon expanding their Prime program by signing agreements with other companies.

International - In the coming years, Amazon will expand into physical grocery retailing in international locations where supplementing online retail with a physical presence will delight customers. Japan, India, Europe, Middle East, Australia, and SE Asia are all markets where Amazon can compete in food and groceries. Amazon is slowly but surely expanding into Latin America and Africa but food and groceries will not be priorities. Amazon may choose to build smaller format stores in Germany, Spain, or the U.K. as a first step towards physical grocery retailing. I recommend Amazon acquire Carrefour or Auchan to establish a physical grocery retail presence outside of the United States. The name Carrefour means "crossroads" in French. I believe Amazon will soon be at a crossroads as they evaluate their additional physical retail needs internationally, and in the United States.

Impact of Amazon Whole Foods on the Grocery Industry

The chart below provides an overview of the market share leaders within the grocery industry. I want to point out that Amazon has the potential to rapidly accelerate their ability to take market share; much faster than executives at their competitors realize. By 2027, Amazon has the potential to become the number two grocery retailer overtaking Kroger.

Harvard University will write a case study about Amazon acquiring Whole Foods and among the themes will be the fact many executives overlooked the danger of Amazon owning and operating Whole Foods. Harvard's case study will point out that grocery executives should have focused on the economic principles entry deterrence and deterrence with credible commitment, to deprive Amazon of a platform and opportunity to become a more powerful competitor in the grocery industry. The case study will also point out that when it comes to Amazon, many executives continue to underestimate Amazon's ability to enter, innovate and re-imagine entire industries.

Costco, Walmart, Albertsons, Target, or Kroger could have acquired Whole Foods. Executives and/or Boards of Directors from each of these companies convinced themselves that Whole Foods wasn't strategic or a cultural fit. These same executives and Boards of Directors must now question how they will prevent Amazon Whole Foods from taking market share and decimating their companies.

Had Whole Foods not been available for Amazon to acquire, my research indicates that Amazon would have struggled to find another grocery retailer to acquire that offered the value and benefits of Whole Foods. Amazon would have remained a minor player in groceries and food for the foreseeable future. Instead, Amazon just became the most dangerous competitor in the grocery industry. Why? Because Amazon has a stronger value proposition for consumers. Amazon can now state that they can meet the grocery needs of all consumers PLUS make the argument that Amazon can meet all of their retail needs. Kroger, Albertsons, Publix, HEB and other stand-alone grocery retailers can only state "We sell groceries" which means they have a lower value proposition. Only Walmart can make an argument similar to Amazon in terms of their value proposition. I'm confident the stock prices of publicly traded grocery retailers will decrease significantly as a result of Amazon acquiring Whole Foods.

Due to Amazon announcing they intend to acquire Whole Foods, the entire grocery industry just became less secure for every major grocery retailer operating today. Odds are high that Mergers & Acquisitions (M&A) will increase in the coming months and years as retailers attempt to increase their strategic position and in some cases, just survive. For many independent and smaller retail chains, they will be unable to survive in a rapidly consolidating industry. I estimate that 10% to 15% of the 38,441 grocery stores operating today will be closed within 10 years.

Below are the companies I believe will be impacted by Amazon's acquisition of Whole Foods resulting in the need for a change in their strategies and view of M&A:

I have stated publicly many times that *Walmart and Kroger cannot, under any circumstances, lose the battle of groceries to Amazon. Amazon just dropped a nuclear bomb by acquiring Whole Foods. Walmart and Kroger have no choice but to reevaluate their entire grocery strategy in order to implement strategies to blunt the impact of Amazon's acquisition of Whole Foods. Behind the scenes, I'm confident executives are huddling to identify how best to respond with few good answers being found. Walmart has an exceptional team of executives and the acquisition of Jet.Com proves Walmart is willing to do what it takes to improve their ability to compete against Amazon. Based on Kroger's slow and steady culture and longevity of executives, I estimate Kroger will react way too slowly to the changes taking place; more on Kroger later in this article.

90% of the population in the United States lives within 10 miles of a Walmart store giving Walmart tremendous density. Walmart has a significant opportunity to implement several strategies that would minimize the impact of Amazon's acquisition of Whole Foods, such as: maximize investment in creating leading edge data analysis to personalize the retail experience for shoppers and increase loyalty to the Walmart brand (Genpact or CBIG Consulting may be a wise acquisition); close the gap with Amazon in terms of the total number of SKUs available for customers in stores and online; maintain everyday low pricing on groceries; create a seamless integration of digital and physical across the Walmart retail ecosystem; and invest heavily in designing and implementing an optimized Omni-channel supply chain to maximize efficiency, reduce costs, and increase speed to customers. Walmart is a bigger threat to Amazon, and all grocery retailers, than most analysts and reporters realize. Amazon, however, is an exceptional competitor. Amazon is also global. Walmart should explore opportunities to expand in growing markets such as India; I recommend Walmart partner with Flipkart by buying a stake in the company. Walmart should assess acquiring Flipkart or Big Basket.

Walmart should focus on creating a new business model instead of just trying to duplicate the Amazon experience. If I was advising Walmart, I would recommend they evaluate opportunities outside of retail and acquire a company with a diversified portfolio focused on technology and with a strong commitment to R&D and innovation. I believe AmerisourceBergen, McKesson, Salesforce and eBay are ideal companies for Walmart to evaluate as potential acquisition targets. Walmart needs to find their AWS; Salesforce is my leading recommendation.

If Walmart wants to remain focused on retail only, then Walmart must go big in their thinking. I recommend Walmart divest Sam's Club and acquire/merge with Costco. A combined Walmart and Costco offers exceptional opportunities for both companies. The argument I'm making is that instead of Walmart (or any other company) copying Amazon, Walmart needs to evaluate opportunities inside and outside of their core industry. Aside from an acquisition or merger with Costco, I don't see any retail M&A plays that will provide Walmart with an edge against Amazon.

Aldi will continue to find success but Amazon has multiple levers they can pull to compete against Aldi more effectively than many analysts estimate. Lidl will struggle to gain traction in the United States similar to what Tesco encountered but I believe Lidl will eventually find success. Both Aldi and Lidl will have no choice but to implement an e-commerce and Last Mile Delivery strategy beginning with a partnership through Instacart or Shipt. I recommend Aldi and Lidl evaluate acquiring Boxed and leveraging Boxed to increase their e-commerce capabilities as well as enter a new channel, bulk sales.

Instacart, who currently has a relationship with Whole Foods, will more than likely see their relationship end as a result of the acquisition by Amazon. I strongly recommend grocery retailers do not leverage 3rd parties such as Instacart to deliver groceries to their customers. If given a choice, acquire, don't contract a delivery company or build the capability inhouse. It is inconceivable to me that Instacart won't leverage all of the information they're capturing from their grocery clients to their advantage at some point in the future. Instacart will become a grocery retailer and an eventual competitor to their current grocery clients, or Instacart will be acquired by a company such as Cerberus Capital that owns Albertsons. Cerberus will leverage Instacart's grocery industry knowledge to improve operations at Albertsons, and use the acquisition to generate excitement for an IPO for Albertsons. It is not beyond the realm of possibility that one day there will be Instacart branded stores. I believe Instacart should explore acquiring Boxed Wholesale.

I understand why grocery retailers are leveraging such companies as Instacart but based on my research and experience, grocery retailers should launch their own delivery capabilities staffed with their own associates sooner rather than later. When done correctly, grocery retailers can leverage their delivery associates to build relationships, educate consumers on products and categories, and increase the number of repeat customers. A saying I have utilized for years is that transportation is the true face of a company to their customers. Should grocery retailers want contractors, and not an employee of their brand, interacting with customers at such an important part of the transaction? In my opinion, no. I believe it is best for grocery retailers to own the customer experience throughout the entire customer transaction, especially delivery to the customer. Instacart will find early success but long-term, intelligent grocery retailers will not cede this part of the customer experience to 3rd party delivery companies. Grocery retailers will also soon realize that the supposed value proposition espoused by 3rd party delivery companies is more mirage than reality. Instacart's business model is not sustainable long-term.

Target is now faced with a serious dilemma - stay the course with their grocery strategy, seek out an acquisition (Hy-Vee, Shipt, Boxed) or exit the grocery business altogether. Full disclosure - I have stated publicly that Target should acquire a grocery retailer and Whole Foods is one of the retailers I mentioned that would benefit Target. My primary recommendation remains that Target and Kroger should merge or form a strategic relationship. A merger is my preferred option. However, a strategic relationship could be signed similar to Target's agreement with CVS whereby CVS acquired Target's pharmacy business and opened CVS branded stores inside all Target stores. Kroger could acquire Target's grocery business and open Kroger branded stores inside all applicable Target stores. Target would gain access to the best grocery retailer in the United States, and Kroger would be able to create a near endless aisle of grocery and retail products for their customers thus increasing Kroger's value proposition. Combining the loyalty programs of Target and Kroger into one easy-to-use program would prove valuable and strategic.

My advice to the Boards of Directors at Kroger and Target is this: Crush all assumptions regarding the impact of Amazon Whole Foods on both companies. Ten years from now, if Amazon carries out the strategy I believe they will for Whole Foods, Kroger and Target will be severely impacted. Have the courage to be honest about the threat Amazon poses, remove egos from the discussions, think long-term, and embrace the importance of thinking big and being strategic. A combined Target and Kroger has massive benefits for customers. If Target/Kroger added Boxed and HelloFresh to the portfolio, momentum would quickly build resulting in Target/Kroger/Boxed/HelloFresh taking dominant positions in their categories. Based on my research, I cannot find an argument against Target and Kroger merging. Instead, Target and Kroger merging is about as perfect a match as possible. The unknown is this: will the executives and Boards of Directors at both companies be courageous or cautious? I believe now is the time for courage. To borrow a line from the popular HBO series Game of Thrones, "Winter is coming" for Target and Kroger in the form of Amazon and a quickly adapting Walmart.

If Target cannot make a deal with Kroger, Target should explore opportunities including a possible acquisition of Target by Costco or some type of strategic relationship. I also recommend Target explore opportunties with Google, Facebook, and Alibaba. Think BIG, Target.

HEB, Publix and other regional grocery retailers will find success more difficult to achieve in the coming years as they will be unable to match prices or offer the selection of Amazon Whole Foods and Walmart Jet.Com who are aggressively creating a nationwide grocery presence with an intent to dominate all major markets. The executives of Publix and HEB need to give serious consideration to forming a strategic relationship and/or discussing a merger or being acquired by Kroger or Costco. Target would be wise to evaluate a merger with Publix or HEB as well. All options need to be on the table now that Amazon has acquired Whole Foods. Analysts who state the market is "overreacting" to Amazon's acquisition of Whole Foods simply don't understand how quickly Amazon can disrupt groceries and food.

Boxed, Shipt, HelloFresh, and Sprouts just increased in value as I believe multiple retailers will explore the possibility of making their own acquisition to better position themselves against Amazon. I believe Boxed could be successful in licensing their technology which may negate a possible acquisition. I believe Boxed will be acquired in 2018 by either Kroger, Amazon, Instacart, BJs, Aldi, Lidl, Ahold-Delhaize, Target or Walmart/Sam's Club. Albertsons and Costco are the Wild Cards who may kick the tires but odds are low they would acquire Boxed; low but not impossible. I believe Sam's Club, Albertsons, and BJs Wholesale have an imperative to acquire Boxed due to the challenges their facing. Target or Kroger may end up acquiring Shipt for delivery of groceries and other retail products, as well as to create the ability to compete against Amazon and Prime Now. Kroger should acquire HelloFresh for speed to market as they lack the ability to manufacture their own meal kits on a large scale. Within 24 to 36 months, Kroger will be a clear leader in meal kits. I estimate Kroger will be the first grocery retailer to offer consumers the ability to completely customize their meal kits for meal planning and online order/delivery. If Kroger doesn't move quickly, however, Walmart and Amazon will be the leaders in meal kits.

I do not believe Blue Apron has value. In fact, I estimate Blue Apron will crater throughout 2017 and by Q3 2018, Blue Apron will only be worth between $200 to $400 million. There is a chance Blue Apron may be acquired but it is not beyond the realm of possibility that Blue Apron simply goes out of business completely. However, Walmart, Kroger, Target, Costco, Starbucks or Panera may have a desire to acquire Blue Apron; Walmart is my preferred choice.

Albertsons, the second largest grocery retailer in North America after Kroger, is suffering from decreased customer traffic across their banners, and continued pressure to reduce prices in order to compete. The analogy I believe that best describes Albertsons is that they're a big sailing ship struggling to find enough apparent wind to propel the company forward. Amazon's announcement that they're going to acquire Whole Foods has taken the remaining wind out of Albertsons sails to the point where Albertsons, who desire to announce an IPO, will instead have no choice but to announce they have canceled plans for an IPO indefinitely.

If Albertsons fails to increase their operational prowess and sales as I suspect, Cerberus Capital, the owner of Albertsons, will eventually sell off pieces of the company to try and salvage their investment. Cerberus will not throw in the towel anytime soon, however, and I believe they will seek out additional M&A opportunities, more than likely one of the meal kit companies. As I stated earlier, Instacart should be acquired. Boxed Wholesale and Overstock.Com would be wise acquisitions. Reaching out to Target to discuss ways they can work together is an idea worth pursuing. Forming a partnership with Costco and Alibaba, or being acquired by Costco or Alibaba, would be a game changer for the company. Yes, Albertsons is buried in debt. However, in order to survive, Albertsons may have no choice but to take on more debt. I remain convinced Costco or Alibaba acquiring Albertsons is their best chance of surviving and eventually thriving.

Ocado, the leading e-commerce retailer in the United Kingdom, is also facing a dilemma. Amazon's acquisition of Whole Foods makes the argument that Ocado's stand-alone e-commerce business model sans any brick and mortar stores, is now less valuable and sustainable. Ocado's executive team would be wise to seek out a grocery retailer to acquire the company or greatly accelerate attempts to license their technology. Kroger and Ocado may be a potential fit. I recommend Kroger evaluate a licensing agreement with Ocado regarding their technology as well as evaluate acquiring the company. If Kroger acquires Ocado, they can leverage Ocado to expand into the states where they currently do not have a presence, as well leverage Ocado's platform to reduce costs and increase efficiency. Kroger can acquire Shipt as the primary mechanism for last mile delivery and a foundation for creating a flex labor delivery model. I continue to believe Ocado will remain a bit player in the grocery industry unless they can sign a licensing deal with a major grocery retailer, or unless they're acquired.

Costco is by every measure an excellent company with a loyal customer base. However, Costco is facing a future where many consumers will be Prime members. A question that has to be asked is why would Prime members pay a membership fee to Costco, especially since Amazon is accelerating their ability to meet consumer demand for bulk sales to the home? Prime members will abandon Costco in the coming years, and fewer consumers will sign up for Costco memberships. Another challenge facing Costco is that Millennials and Generation Z are not excited about shopping at warehouse clubs, and instead prefer to buy groceries online and have products purchased in bulk delivered to their home or apartment.

Costco will increase investment in online grocery and bulk sales and will more than likely sign an agreement with Instacart or Uber to deliver groceries by 2018. Although the strategy will slightly increase sales and revenue, it is not a long-term strategic move. Costco must do more.

Over the next 10 years, Costco will lose market share to Amazon Whole Foods. If Kroger acquires Boxed, Kroger will take market share from Costco. Costco should explore acquiring or merging with Kroger; acquiring Boxed; or explore strategic partnerships, acquisitions, or mergers with Albertsons or other grocery retailers. My preferred strategy for Costco is to merge with or be acquired by Walmart. The challenge is that even with Amazon's acquisition of Whole Foods, I'm not convinced companies like Costco and Kroger truly understand how vulnerable they are in the coming years which may prevent them from being aggressive in M&A as well as THINKING BIG. If Amazon continues to make acquisitions in addition to Whole Foods (Boxed, Blue Apron, HelloFresh, etc.) while other retailers do nothing, Amazon wins easily.

Is Amazon Whole Foods Unstoppable?

Kroger remains the best grocery retailer in the United States and one of the best grocery retailers globally. Kroger is also the grocery retailer I believe that has the best chance of preventing Amazon's grand ambitions for Whole Foods from becoming a reality if Kroger is willing to go on offense. ClickList, Kroger's online grocery ordering and pick-up at the store service; Scan, Bag, Go being rolled out in select stores to speed the grocery shopping experience; increased focus on digital; exceptional private label capabilities; and grocery home delivery utilizing 3rd party delivery companies, are all useful for Kroger to help level the playing field. However, Kroger must do more, much more. Kroger must increase their value proposition to be more than "We Sell Groceries". Amazon and especially Walmart, are investing heavily in creating ecosystems that can meet the needs of their customers for food, groceries, and all things retail. Kroger is in a precarious position whereby due to their singular focus on one thing, groceries, Kroger's value proposition to customers severely weakens over time.

The challenge for Kroger is accepting the fact that grocery retailing as they know it is over. Kroger must pivot in order to design and implement a 10-year strategy that will assure Kroger doesn't just compete in groceries, Kroger becomes the dominant leader in groceries and food in 48 states and where strategic, internationally. Kroger must become more bold in their thinking and more willing to consider options to increase their competitive position. For example, an interesting possibility is for Kroger and Alibaba to form a strategic partnership whereby Kroger licenses Alipay, and launches Alibaba's advanced Hema supermarkets in select locations. I believe Alibaba should acquire Kroger as a way to enter the USA, as well as extend and complement their global retail ecosystem. A combined Kroger and Alibaba would prove to be Kryptonite to Amazon Whole Foods and Walmart/Jet.Com, while adding substantial value to Kroger customers.

A dilemma facing Kroger is the massive gap that exists between the number of SKUs (products) available for purchase through Amazon.Com, Walmart/Jet.Com, and Kroger. An average Kroger grocery store stocks 50,000 items. Research indicates that Kroger has a desire to utilize a digital strategy (Kroger.Com) to increase the number of SKUs available for purchase. For arguments sake, let's assume Kroger has a goal of adding 1,000,000 additional SKUs to their mix of products. How will such a strategy impact Walmart or Amazon? See below:

• Number of SKUs carried by Amazon = 100,000,000 +
• Number of SKUs carried by Walmart = 70,000,000 +

Therefore, even if Kroger increased their SKU count by an additional 1,000,000 SKUs, all that will be accomplished is that Kroger will have 99,000,000 fewer SKUs than Amazon, and 69,000,000 fewer SKUs than Walmart. See the danger? See the fallacy of such a strategy? Kroger would be wise to conduct advanced SKU analysis to ensure that only those SKUs with the highest financial return, and the highest level of importance to customers, are carried within their stores; all other SKUs should be carried online only or made available through a 3rd party retailer. Simply adding more SKUs and entering into an "arms race" against Amazon and Walmart isn't the answer. Kroger should embrace strategic M&A with a goal of merging, acquiring or partnering with companies that are proven winners, identifying smaller start-ups with disruptive potential, and integrating the companies and their products/services throughout the Kroger enterprise.

If I was advising Kroger, the first recommendation I would make is that Kroger must re-engineer their supply chain and answer these questions:

1. What is the optimal Omni-channel supply chain for cost-effectively meeting customer demand across all channels?
2. How can Kroger leverage the supply chain to enable growth and achieve a competitive advantage?
3. What is the optimal operating model and organizational structure for managing Kroger's supply chain? Should a separate company, Kroger Logistics, be created to meet the supply chain and logistics needs of all banners and digital customers?
4. Are there companies Kroger can collaborate with to reduce costs across the supply chain? Kimberly - Clark? P&G? Ahold - Delhaize?

Regardless of the amount of capital invested in digital or stores, Kroger's future success is dependent upon their supply chain and logistics prowess. Based on my past research which included discussions with supply chain experts from leading consulting firms with first-hand knowledge of Kroger, as well as discussions with competitors of Kroger, no aspect of Kroger's supply chain can be considered best-in-class. As with most companies that have grown by acquisition, Kroger has a sub-optimized supply chain and logistics network with extensive opportunities for automation, optimization, and reductions in costs and complexity. Creating a Chief Supply Chain Officer role and hiring a highly qualified executive from outside the company is warranted and recommended. This is a must-have for Kroger.

Kroger must do some much needed soul searching and realize that the time has come to locate all technology and software development currently performed in Cincinnati, to Seattle. I am incredulous that Kroger hasn't learned from Walmart, Amazon, Google, Microsoft, Facebook and other companies, about the need to take advantage of the highly skilled technology resources concentrated on the West Coast. Outside of the West Coast, Austin, Texas is an alternate location. I believe Kroger has made a miscalculation regarding the importance of talent and unless Kroger significantly reduces their presence in Cincinnati, Kroger will continue to struggle to find qualified resources willing to work in Cincinnati. Frankly, I believe Kroger should relocate their headquarters to Seattle or Austin to put themselves as close to Amazon or Whole Foods as much as possible. If necessary, open a second headquarters location.

I believe Kroger needs a complete transformation as it relates to technology and software. Kroger must modernize their technology and procure leading edge software to run stores and the supply chain. The time has come for Kroger to end their "we build what we need" mentality and instead, standardize operations through a single platform in order to achieve one version of the truth. Kroger should hire an exceptionally talented Chief Technology Officer to take command and control of Kroger's technology future.

Kroger should implement a cost-cutting and capital discipline structure similar to 3G Capital who have made impressive moves strategically, such as acquiring Burger King and Heinz, and who are famous for their laser-like focus on cutting costs. The goal for Kroger should be to identify and eliminate all unnecessary spending to ensure capital can be allocated to initiatives that will have the biggest impact on customers - addressing issues within their core grocery business, optimizing the supply chain, moving to the cloud, upgrading technology, and implementing a leading-edge Omni-channel platform. Zero-based budgeting should become the norm no later than 2020. Kroger should maximize efforts to evaluate and improve all processes within stores to reduce costs and complexity and increase customer experience. Kroger should also move aggressively to maximize customer growth and revenue at every store they operate vs. opening new stores.

As stated earlier, Kroger should explore a merger/strategic relationship with Target, Costco or Alibaba; this is my primary recommendation. However, if Kroger cannot be acquired by Costco or Alibaba; if Kroger and Target don't merge; or if Kroger doesn't acquire Target's grocery business, Kroger should evaluate additional companies as potential acquisitions or strategic partners. A powerful strategy Kroger can and should pursue is this: acquire **Overstock.Com as the e-commerce engine for all general merchandise and run Kroger.Com on the Overstock platform. Research indicates that Kroger customers turn to Walmart, CVS, Walgreens, Amazon, etc., for many of their retail needs. Kroger must create a digital/Omni-channel experience to meet the expanded retail needs of their customers; Overstock.Com provides such a platform. Kroger should acquire Boxed, an online discount warehouse club that sells products in bulk. Based on my research, Kroger can integrate Boxed into Kroger.Com to introduce B2C and B2B bulk sales channels. I firmly believe Kroger can take significant market share from Costco and Sam's Club if they acquire and integrate Boxed into the Kroger ecosystem. Based on the research, Boxed + Overstock.Com = growth and a competitive advantage for Kroger. It also means an estimated $23B in additional revenue potential. An activist investment firm should take a position in Kroger to assist them in understanding the potential of the company and unlocking value. Think Big, Think Big, Think Big. Question the status quo.

Kroger must solve the riddle of Aldi and other discounters. Kroger's current strategy of having multiple banners focused on selling groceries at a discount is wrong. Just as Amazon and Walmart are a threat, Aldi is also a growing threat to Kroger. I have evaluated Aldi and Lidl's operations globally and I have had extensive interactions with the leadership of both companies over the years. Aldi and Lidl are the two best grocery retailers in the world and they will only grow stronger. Kroger is at a severe risk of losing customers and market share to Aldi, and potentially Lidl, at an accelerated pace in the coming years. I recommend that Kroger identify the best model for selling groceries at a discount in stores and online, and expand the concept nationally. I believe Kroger can utilize their convenience stores in a strategy to beat Aldi and Lidl. It may be in the best interest of Kroger to either divest certain discount brands or rebrand multiple banners to create a single discount brand and format that can beat Aldi and Lidl. If Kroger fails in this endeavor, it will have serious consequences to the company.

Kroger should evaluate forming a strategic partnership with Sephora or Ulta Beauty for the purpose of opening a 'store within a store' inside select Kroger banner stores. Ulta Beauty is an ideal company for Kroger to approach. Ulta Beauty's strategy is to invest capital in opening 100 stores per year for the foreseeable future. If Ulta Beauty partnered with Kroger, it would provide Ulta Beauty with an option to open smaller, less capital intensive stores, inside most if not all of Kroger's 2,800 stores, as well as leverage an enhanced digital experience to increase sales. Beauty is a category Kroger must grow.

Additional categories Kroger should explore for 'store within a store' across their banners, and potential retailers to partner with include:

• Hardware and Tools (Ace Hardware or Northern Tool + Equipment)
• Electronics (Best Buy or Staples)
• Kitchen and Home (Bed, Bath and Beyond; Macys)
• Toys (Toys R' Us, Funko, Disney, Lego, Hasbro)
• Sporting Goods (Scheels or Dick's Sporting Goods)
• Deli (Eatzi's Market & Bakery, may need to select regional partners)
• Restaurants (Cracker Barrel)

Kroger should view General Merchandise (All non-food items) as an opportunity to delight customers, increase revenue, and create a competitive advantage. As of June 2017, Kroger's General Merchandise averaged 4% of sales. However, with sales of over $110B annually and nearly 30 million customers visiting Kroger banners monthly, what is the total potential of General Merchandise sales if Kroger implemented the strategies I recommend? Based on my research, Kroger's General Merchandise sales across banner stores should be closer to $16B annually vs. the current $4.5B in annual sales. Note: Kroger can work with design firms to create their own versions of 'store within a store' for each category I listed. Partnering with other retailers isn't mandatory. Kroger must evaluate which option will delight the most customers.

Kroger should divest Vitacost as there is no strategic value in keeping Vitacost. I question why Kroger acquired Vitacost in the first place. However, I believe Vitacost offers value for several potential buyers of the company.

Kroger should evaluate expanding their convenience store business which generates $4B in sales annually, and is a business in which Amazon does not compete. Kroger can introduce grocery pick-up locations within their convenience store business unit; design and implement a national system of lockers open to all e-commerce shippers and delivery providers; design and build convenience stores that include expanded grocery aisles; and include convenience stores as part of their overall grocery and food ecosystem. I believe convenience stores can be strategic to a grocery retailer. Kroger should challenge themselves to grow their convenience store business from its current ranking of number 10 on the list of the largest convenience store companies, to become a top 5 convenience store chain. A strategic move would be to acquire Casey's General Stores, ranked number 4 in terms of their size in the convenience store industry. At a minimum, Kroger should consider acquiring Speedway LLC, ranked number 6. Alas, I believe Kroger will divest their convenience store business in 2018 in order to fund much needed investments in technology, supply chain, logistics and store remodeling. I hope I'm wrong. I recommend Kroger keep their convenience store business and instead divest some of their grocery banners to provide capital.

With banners in 35 states, Kroger attracts millions of customers weekly to shop their stores. However, a challenge for Kroger will be Amazon's ability to use the Amazon brand to establish top-of-mind thinking to millions of consumers, that Amazon should be their first-choice for groceries. Kroger should accelerate discussions regarding how to establish a "Many Banners - One Kroger" brand strategy whereby the name Kroger becomes synonymous as the place for groceries and food. Kroger can also evaluate creating a food marketplace whereby international and domestic independent sellers and emerging brands can sell their food products. However, a food marketplace can easily be copied by other retailers so Kroger cannot rely on a marketplace strategy to create a competitive advantage. Apple, Walmart, and Amazon have proved the value of top-of-mind thinking. Kroger will be at a disadvantage over the long-term if they cannot establish a singular brand name and a reputation as the leader for quality, value, convenience, and personalization.

Do not underestimate the ability of Kroger but Kroger has a short runway upon which to make the required investments and changes. Kroger executives should do whatever it takes to defeat the inertia that is often found in companies as large and old as Kroger. If Kroger doesn't transform, they will lose customers, market share, revenue, and eventually relevance. On the record, I recommend Kroger do the following:

1. Pursue discussions with Target about a merger. If a deal cannot be achieved with Target, approach Ahold - Delhaize about a merger. If Kroger cannot find a proven winner to merge with, Kroger should be open to being acquired by a proven winner such as Costco, Google, Facebook or Alibaba. At a minimum, Kroger should explore strategic relationships with Facebook, Google, and Alibaba. Costco is a competitor Kroger can take market share from with the right strategy.
2. Design and implement a store within a store strategy for the categories of Beauty, Tools and Hardware, Electronics, Sporting Goods, Kitchen, Toys, Bath/Home, and Deli in applicable stores.
3. Design a store layout that is designed on the way consumers eat - Breakfast, Lunch, Dinner, Snacks. Design a section for Pharmacy and Personal needs. I have created multiple designs that have proved popular.
4. Expand focus on convenience stores and integrate convenience stores strategically across the Kroger enterprise.
5. Acquire Boxed, HelloFresh, Shipt, Overstock.Com and/or Sears Home Services. If Shipt is off the market, Kroger should explore a partnership or acquisition of Grubhub to create a combined Last Mile Delivery company specializing in restaurant, groceries, and products sold through Kroger.Com.
6. Partner with Cracker Barrel to open specially designed Cracker Barrel restaurants inside select Kroger stores, and create a mutually beneficial loyalty program. Kroger's loyalty program can and should be expanded across multiple retailers and organizations to drive more customers to Kroger.
7. Be first to market with customizable meal kits and meal planning. Meal kits should be available across all stores and online for home delivery.
8. Evaluate Ocado to license their technology and/or acquire Ocado.
9. Design, manufacture and market stand-alone containers capable of receiving grocery and package deliveries in the home or to the door. A partnership with YETI Coolers and other manufacturers should be explored to create a best-in-class product.
10. Evaluate Takeoff Technologies innovative stores to determine if they fit into the overall strategic direction of the company; if so, an acquisition or strategic partnership should be pursued.
11. Re-engineer the front of the store to eliminate the need for cashiers and/or greatly reduce the number of cashiers. Store associates should be re-trained to become Knowledge Workers focused on gaining expertise across categories and assisting customers.
12. Create a separate company, Kroger Logistics, to manage all supply chain, logistics, and transportation needs across banners, as well as sell excess capacity on the open market. Kroger Logistics has the potential to become a Top 10 Logistics company within five years of launching as long as Kroger hires an experienced, innovative, and highly skilled executive to run the company.
13. Expand to a minimum of 48 states and explore international opportunities. Amazon is global. Walmart is international. Kroger cannot compete over the long-term operating in just 35 states. Over the next 10 years, Amazon and Walmart will become significantly stronger as they maximize their value proposition to customers.
14. Become the leader in using data to segment, personalize, and individualize the shopping experience for customers. Become the leader in using data to add value to customers when they're not in stores. Kroger has an exceptional opportunity to expand their pharmacy and health services business leveraging data, digital and physical stores.
15. Modernize technology across the company including the manufacturing division. Implement leading-edge, off-the-shelf software where possible to run stores and the supply chain. Eliminate the costly and complex process of developing software in-house except when absolutely necessary. Kroger needs one version of the truth of their operations, inventory, and supply chain.

Although I respect Kroger's history and what they've accomplished, Kroger will not succeed in the future without beginning the journey to implement the massive changes I've outlined. In addition to ensuring that only the most skilled and qualified individuals fill senior executive roles across the company, one of the most important steps that Kroger can take is making the decision to hire their next CEO from outside of Kroger. A strategic hire that will crush all assumptions and question the status quo across the entire Kroger enterprise is a must-have. I strongly advise Kroger to begin searching the ranks of executives at Amazon, Walmart, Apple, Google, Facebook, McKinsey, Nestle, McKesson, AmerisourceBergen, Wallgreens, Microsoft, and AB-InBev in order to find their next CEO. I see no value in Kroger hiring an executive from a grocery retailer unless it is a senior executive from Aldi or Lidl. Kroger needs an executive with a global frame of reference and a mindset of No Limits. In order to succeed in the future, Kroger must become more than a retailer of groceries. Out of all the candidates I can name who have the capabilities and leadership to become the next CEO of Kroger, two names are at the top of the list:

• Greg Foran of Walmart
• Stephenie Landry of Amazon

The choice for Kroger is simple: change or slowly but surely lose relevance. Kroger can win the grocery wars but only if they can defeat inertia and learn to think big. Kroger must understand and embrace the reality that in ten years, Amazon Whole Foods can, and more than likely will, become the number two grocery retailer in the United States surpassing Kroger. In order to prevent such a prediction from becoming a reality, Kroger must evolve in their thinking, and accelerate change and innovation across the Kroger enterprise.

What's Next for Amazon?

As stated earlier, I recommend that Amazon acquire Carrefour or Auchan to increase their physical grocery presence internationally. As for Amazon in the United States, I see no reason why they can't make additional acquisitions to strengthen their competitive position. In fact, I estimate that Amazon will choose to make one or more big retail acquisitions between 2017 and 2022. By "big" I mean it is possible that Amazon will choose to acquire either Best Buy, Nordstrom, Macy's, Saks Fifth Avenue, Target, Home Depot, Lowe's or Costco.

Why Target? Although there are many reasons, I will focus on the reason most relevant to this article. With nearly 1,800 stores in the United States, if Amazon acquires Target, they can open Whole Foods stores inside the majority of Target stores instantly making Amazon the third largest grocery retailer in the United States only behind Kroger and Albertsons. In addition, due to Target's relationship with CVS, Amazon would accelerate their ability to expand into healthcare and the pharmacy industry on a major scale.

Due to Amazon's $500B+ market capitalization, Amazon can finance any deal in retail they wish to make. Also, as long as Amazon remains within legal guidelines and adheres to regulatory requirements, Amazon can make multiple retail acquisitions. It's important to point out that Amazon can choose at any time to create separate companies. AWS, for example, could easily become a stand alone company. Amazon could create a separate logistics company. Amazon could choose to create separate companies focused on physical and online retail.

Additional retail acquisitions Amazon could consider include JC Penney, Kohl's, Wayfair, Menards, Sutherlands, Mill's Fleet Farm, W.W. Grainger, or 84 Lumber. Home furnishings, furniture and home improvement will grow in importance to Amazon hence the variety of companies I've listed. Home Depot and Lowe's have a target on their back, and Amazon has every intention of competing against each. The Wild Card is Sears. I can make an argument that Amazon should acquire Sears due to their prowess in appliances, automotive, and Sears has nationwide coverage with their stores. It is certainly true that Sears stores have been neglected but if Amazon were to acquire Sears, Amazon would rationalize the network of stores, refurbish the stores Amazon determines work best within their ecosystem, and then re-imagine the appearance of the stores. I believe Amazon would create highly interactive electronics, appliance, furniture, apparel, etc., sections within the stores that would prove popular to consumers.

For the record: Amazon may choose to also make acquisitions of companies in other industries. Transportation and logistics will continue to grow in importance for Amazon so it is not beyond the realm of possibility that Amazon may choose to acquire a logistics company (XPO Logistics) or even make a big play and acquire FedEx or UPS. One of the more interesting scenarios I can envision, but one of the least likely, is that Amazon will try and ingratiate themselves with Congress by acquiring the United States Postal Service. The USPS must do something drastic or taxpayers will continue to lose billions subsidizing an inefficient and arcane institution. Amazon, or even Walmart, running the USPS would be a wise move by Congress and a boon to taxpayers.

It all depends on Amazon. Will they choose to make small, medium or large acquisitions? Will Amazon choose to make acquisitions in pharmacy, insurance, agriculture, automotive, energy, technology, aerospace, or other industries to broaden their portfolio? Will Amazon choose to become a CPG company and make an acquisition of a major CPG company such as P&G or Unilever? Will Amazon choose to move heavily into food and begin acquiring food and distribution companies such as Sysco, U.S. Foods, McLane, Nestle, Mondelez International, Campbell's, General Mills, or Tyson Foods? Will Amazon be cautious in terms of acquisitions in order to avoid being accused of being a monopoly? Will Amazon buy available real estate and surgically inject stores across the United States to meet their needs? Will Walmart, Google, Facebook, or Alibaba move first and acquire the best of the best major retailers in an effort to deprive Amazon of acquisitions? I predict the answers to these questions will be known sooner rather than later.

Latin America is an undeveloped market for Amazon but that will soon change. In addition to expanding Amazon's presence in Latin America, it's possible that Amazon will acquire MercadoLibre, the leading e-commerce platform in the region; a similar strategy was used when Amazon acquired Souq.Com when they entered the Middle East. I believe it's possible that Amazon will acquire the Swift brand of frozen protein retail stores from JBS, one of the largest meat companies in the world, headquartered in Brazil. The potential for e-commerce and physical retail is endless throughout Latin America in the coming years. Just as China is developing their One Belt, One Road to link China with Eurasian countries to create a massive trade route via land and sea, Amazon has the potential to link North America, Mexico, Central America and South America through an extensive network of e-commerce, physical stores and restaurants, launched or acquired, throughout the entire region.

Amazon wants to be a leader in the food business. I won't be surprised to see Amazon collaborate with Starbucks or Panera on a restaurant concept and/or see Amazon develop their own restaurant concept. I also won't be surprised if Amazon acquires a restaurant chain. It is safe to state that Amazon will accelerate their ability to deliver food from different restaurant chains; GrubHub and other food delivery companies will find it challenging to compete with Amazon in the years ahead. As I stated earlier, Grubhub has the potential to morph into a last mile delivery provider for groceries similar to Instacart. I anticipate a retailer will acquire Grubhub and turn them into a Shipt/Instacart, only better.

One final comment - just because Amazon has acquired Whole Foods, doesn't mean success for Amazon Whole Foods is assured. Walmart/Jet.Com are working feverishly to increase market share of groceries through innovation; increasing the quality of their products; and increasing the quality of the customer experience. Kroger has the potential to leverage their stores; a redesigned supply chain; a leading-edge digital strategy; and their best-in-class grocery experience to prevent Amazon from achieving their lofty goals, assuming Kroger makes the required changes and investments. A phrase I used as a consultant and internally at Amazon was this: "Acquiring a grocery retailer is strategic to the future of groceries and food at Amazon. However, physical grocery retailing is hard. Without a laser focus on transforming whatever grocery retailer is acquired and accelerating investments in the business, the grocery retailer we buy could turn out to be Amazon's bridge too far."

Only time will tell if Amazon Whole Foods succeeds or fails.

Conclusion

I turn to the teachings of the Chinese General Sun Tzu, to put an exclamation point on the announcement by Amazon they intend to acquire Whole Foods and to recognize the genius of how Amazon operates:

“All warfare is based on deception. Hence, when we are able to attack, we must seem unable; when using our forces, we must appear inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near.”

“If your enemy is secure at all points, be prepared for him. If he is in superior strength, evade him. If your opponent is temperamental, seek to irritate him. Pretend to be weak, that he may grow arrogant. If he is taking his ease, give him no rest. If his forces are united, separate them. Attack him where he is unprepared, appear where you are not expected.”

Jeff Bezos is Sun Tzu reincarnated and for the record, I have tremendous respect for Jeff Bezos and the executives and associates at Amazon.

Amazon has the potential to become the second leading grocery retailer in the United States in terms of sales by overtaking Kroger by 2027. By 2030, Amazon has the potential to become the number one grocery retailer by sales overtaking Walmart. Amazon also has the potential to become the leading grocery retailer in terms of sales in some international locations. As I stated earlier, Amazon will re-imagine the grocery experience vs. playing by the same rules as all other grocery retailers. Amazon's ability to 'think big' and operate in a corporate environment that has no concept of time or limits on what they can achieve, will impact their strategy for food and groceries; it will also give Amazon an advantage.

I won't be surprised if another buyer steps forward and makes an offer to Whole Foods. As the idea of Amazon acquiring Whole Foods reverberates in Boardrooms across America, it isn't beyond the realm of possibility that an executive team determines it is in their best interest to acquire Whole Foods vs. Amazon. Target? Walmart? Costco? HEB? What about something completely out of left field such as Google or ***Facebook stepping in and making an offer? Think it can't happen? I'm not so sure.

Some analysts and politicians may start the drum beat that Amazon is inching towards becoming a Monopoly. This is false. I believe the challenge for Amazon will be in preventing the impression, or the reality, that Amazon is a Monopsony - A monopsony, sometimes referred to as a buyer's monopoly, is a market condition similar to a monopoly except that a large buyer, not a seller, controls a large proportion of the market and drives prices down. A monopsony occurs when a single firm has market power in employing its factors of production. It acts as a sole purchaser for multiple sellers, driving down the price of seller inputs through the amount of quantity that it demands. (Investopedia.)

The Amazon Effect may be viewed increasingly negative by business leaders and Congress, and accusing Amazon of being a Monopsony could lead to Congress stepping in to investigate. Just as Standard Oil was accused and convicted of having an "unreasonable restraint to Inter-State Commerce" as a monopoly, I anticipate at some point in the near future, the same argument will be the basis for accusing Amazon of having an unreasonable restraint on the price of goods purchased and sold.

Sincerely,

Brittain Ladd

*In my paper, If I was the CEO of Walmart, I recommend that Walmart leverage their stores as fulfillment centers for groceries. In addition, as a way for Walmart to achieve a competitive advantage over Amazon, I recommended that Walmart leverage their store associates to deliver the orders. 90% of Americans now live within 10 miles of a Walmart store which means if Walmart implements what I recommend, they would have the largest same day network out of any retailer. Walmart must become more aggressive in their battle with Amazon.

**Overstock.Com would allow Kroger to expand their product lines across multiple categories that would be embraced by Kroger customers such as Bed and Bath, Kitchen, and Furniture. As stated in the paper, Kroger must expand their focus on General Merchandise in stores and online. Instead of trying to create their own platform and assortment, Kroger should acquire Overstock.Com and leverage their platform to meet the needs of Kroger customers and also expand into cross border and international commerce through Overstock's 'Worldstock' marketplace. Patrick Byrne, the CEO and Founder of Overstock, and the team of executives, haven't recieved enough credit for what they created at Overstock.Com. Kroger should prioritize acquiring Overstock.Com but Patrick Byrne may have no desire to sell the company.

***I believe Facebook has tremendous potential to become an e-commerce retailer, and/or provide a platform for a company such as Kroger to leverage Facebook for a new way to market and interact with consumers. Although I anticipated that Walmart would acquire Jet.Com, I wanted Facebook to acquire Jet.Com as I believe it would have been an interesting strategic move. I support Walmart’s decision to acquire Jet.Com and their highly skilled team of executives and associates.