The likely first initiative for integrating the online and physical store merchandising, inventory management and customer fulfillment capabilities involved in the Amazon acquisition of Whole Foods Market began to unfold this week.

Whole Foods announced the introduction of free two-hour delivery of natural and organic products from Whole Foods Market through Amazon’s Prime Now online fulfillment capability. Starting this week, Amazon Prime customers in neighborhoods of Austin, Cincinnati, Dallas, and Virginia Beach can shop via Prime Now for bestselling items including fresh produce, high quality meat and seafood, everyday staples and other locally sourced items from Whole Foods Market. Plans call for expanding this service across the U.S. for the remainder of this year. Whole Foods Market

What It Means

The announcement implies that Amazon Prime Now customers will eventually have the ability to shop a wide variety of Whole Foods product selections, and the implication is that Amazon’s fulfillment system will have visibility to local or multiple store inventory, where fulfillment will likely originate.

As highlighted in a prior Supply Chain Matters commentary, Whole Foods is already experiencing on-shelf availability challenges regarding certain fresh and other product selections, likely because of the rollout of a centralized inventory procurement and direct-store-delivery program that was initiated prior to the Amazon acquisition.

Meanwhile, Whole Foods continues to implement other pre-acquisition initiatives, in addition to centralized inventory procurement, to boost margins. That includes adding additional challenges to existing suppliers, that include posing added fees for products to be featured in end-of-aisle or main aisle displays. Suppliers are being pressured to offer larger price discounts on respective products that will be promoted, while local in-store product promotions and demonstrations will now be centrally managed by a new third-party services provider. Previously, product promotions were local or regionally managed.

This new joint customer fulfillment program that will leverage Prime Now as the online presence will obviously add to pressures on Whole Foods corporate and in-store teams to up their game in inventory management and timely on-shelf and online delivery. We can all speculate that inventory to fulfill Prime Now fulfillment may take priority status in this initial pilot rollout effort, and in broader online fulfillment programs in the coming months. It will take some time to sort out and eventually integrate this multiple pre-acquisition and now, post-acquisition initiatives. There may be supplier fallout among smaller suppliers who cannot scale to the new integrated, centralized managed model.

The entire Whole Foods food, grocery, and natural foods supply chain network, including major distributor partner United Natural Foods will have to respond to this new model of integrated physical and online fulfillment.

 

Bob Ferrari

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