Amazon Buying Whole Foods Market: Inside A Game-Changing Move for Retail

Chris Kanaracus

Managing Editor, Constellation Insights
Constellation

Chris Kanaracus is managing editor of Constellation Insights.  Insights delivers exclusive, daily analysis of breaking news across Constellation’s eight business research themes to Constellation Executive Network members.  Prior to joining Constellation, Kanaracus spent seven years covering the enterprise software industry for IDG News Service, where he frequently broke exclusive stories with a focus on end-customer issues. Kanaracus has also held various managerial and reporting roles at newspapers in New England since 1998. Twitter: @chriskanaracus , Title: Big IdeasConstellation Insights Insights delivers exclusive, daily analysis of breaking news across Constellation’s eight business research themes to Constellation Executive Network members. ...

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In a stunner of a move, Amazon will pay $13.7 billion to acquire upscale supermarket chain Whole Foods Market. It's a move that will significantly change Amazon as a company and has implications for the future of retail, omnichannel commerce and supply chain practices. 

Once the deal closes in the second half of this year, it will be business as usual, with Whole Foods CEO John Mackey remaining in that role, and the chain's stores retaining their branding and supplier relations, according to a joint statement.

The companies' announcement emphasized Whole Foods' track record as a purveyor of healthy, fresh foods—67 percent of its business comes from fresh products—and with the deal Amazon gets a major jumpstart into the grocery business, which is estimated at nearly $700 billion in the U.S. alone.

Whole Foods logged about $16 billion in revenue last year, a small piece of the overall pie but much, much more than what Amazon has generated to date with its home-delivery grocery service. Whole Foods has been experimenting with grocery delivery through a partnership with Instacart, but that pact is undoubtedly doomed in light of this week's announcement. 

Amazon was reportedly planning to open as many as 2,000 Go stores, which use technology to eliminate the need for checkout lines and cashiers. But only a test store open to Amazon employees exists, with an announced 2017 launch yet to occur.

It's not clear whether Amazon will proceed with the smaller-store concept now, and has instead decided to buy an established grocery store player in Whole Foods, leveraging its brand, mitigating risk, and focusing on growing the delivery component.

Meanwhile, Amazon's vaunted supply chain expertise should be a boon for Whole Foods, helping it drive down costs than in turn could be passed on in lower prices. In turn, Whole Foods has something to teach Amazon about the perishable foods business.

Amazon can bring a vast amount of bleeding-edge technology to bear on Whole Foods' operations as well, but the grocer has already been working to upgrade its technology. It began partnering with Infor in 2015 to build a new cloud-based retail management ERP system, which will be used to consolidate a tangle of homegrown applications. (As it happens, Infor uses Amazon Web Services for its cloud infrastructure.) 

For one thing, Amazon has already built out an extensive network of distribution centers, but the addition of Whole Foods' more than 460 locations in the U.S., Canada and the UK instantly creates another concentric ring of distribution points, ones typically located in highly populated areas. 

No, Whole Foods won't be changing its name to Whole Warehouse. But it's easy to see how Whole Foods stores could include a countertop where shoppers could pick up Amazon packages, as well as make returns. Regarding the latter: Given storage and other logistical considerations, it's unlikely that these locations would handle returns on bulky items such as televisions or appliances. 

But clothing, on the other hand, would be an ideal candidate. Amazon is already poised to become the single largest U.S. clothing and accessory seller, with nearly $30 billion in clothing sales projected for this year. Amazon has also recently shifted toward higher-end apparel, a move that aligns well with the economic profile of many Whole Foods' shoppers.

While return rates for online clothing purchases will likely remain eye-watering, if Amazon customers know they can return clothes to a local store—while getting their food shopping done—they may be inclined to make more clothing purchases overall through Amazon.

Another possibility would see small, Amazon-branded retail shopping sections within Whole Foods' stores. The emphasis here could be on a frequently changing selection of high-margin, impulse buy items catering to the sensibilities of Whole Foods shoppers. 

Skeptics should note that many supermarket chains already house non-grocery related businesses, such as bank branches. Whole Foods itself has been steadily adding both quick-stop and full-service restaurants to its stores. It also stocks some housewares and home goods. 

Still, Whole Foods will still be primarily a grocery store after the deal closes, and Amazon's goal will be to grow its home-delivery business. Online grocery sales have been touted as the next big thing for well over 15 years, but it simply hasn't happened, as Amazon itself knows all too well. What's going to be different this time?

One challenge Amazon and other online grocery sellers have faced is the simple fact that consumers like to pick out their own perishables, particularly fruits, vegetables and meats. Delivery services provide convenience, but people do the picking for you. This will remain an inhibitor with Whole Foods customers, for whom part of the experience has always been the vast arrays of high-quality meat and produce found in the stores. 

Second, consumers don't want to pay more money for food purchased online. Rather, they want to pay less, just as they perceive to be the case with other online purchases. It costs money to pay workers to pick orders, and delivery drivers to make the deliveries, and the grocery industry's notoriously narrow profit margins don't care. 

Amazon has shown time and again it is willing to lose money in the name of gaining market share. Whether this will be the case with Whole Foods remains to be seen. Certainly, technological innovations could smooth the transition—automated checkouts like those found in the Go store could free up workers to handle delivery orders—but it's nonethless a vexing challenge that lies ahead.

This post was written on the same day Amazon and Whole Foods announced the deal. There will be much more to chew on in the weeks and months ahead, but one thing is for sure: Amazon has made yet another industry-changing move.

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Salesforce Launches Einstein Analytics: What It Means

Chris Kanaracus

Managing Editor, Constellation Insights
Constellation

Chris Kanaracus is managing editor of Constellation Insights.  Insights delivers exclusive, daily analysis of breaking news across Constellation’s eight business research themes to Constellation Executive Network members.  Prior to joining Constellation, Kanaracus spent seven years covering the enterprise software industry for IDG News Service, where he frequently broke exclusive stories with a focus on end-customer issues. Kanaracus has also held various managerial and reporting roles at newspapers in New England since 1998. Twitter: @chriskanaracus , Title: Big IdeasConstellation Insights Insights delivers exclusive, daily analysis of breaking news across Constellation’s eight business research themes to Constellation Executive Network members. ...

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Doug Henschen

Former Vice President and Principal Analyst
Constellation Research

Doug Henschen is former Vice President and Principal Analyst where he focused on data-driven decision making. Henschen’s Data-to-Decisions research examines how organizations employ data analysis to reimagine their business models and gain a deeper understanding of their customers. Henschen's research acknowledges the fact that innovative applications of data analysis requires a multi-disciplinary approach starting with information and orchestration technologies, continuing through business intelligence, data-visualization, and analytics, and moving into NoSQL and big-data analysis, third-party data enrichment, and decision-management technologies. Insight-driven business models are of interest to the entire C-suite, but most particularly chief executive officers, chief digital officers,…...

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While the technology isn't entirely new, Salesforce's just-launched Einstein Analytics marks the next path forward in its AI and advanced analytics strategy. 

Previously branded as Salesforce's Wave analytics, the suite "adds a layer of artificial intelligence to the entire analytics workflow, automatically surfacing CRM insights and recommending actions to accelerate sales, improve customer service and optimize marketing campaigns," as the company puts it.

Salesforce has also rebranded its BeyondCore product as Einstein Discovery. It acquired BeyondCore, maker of an automated data analytics platform, last year. Einstein Discovery can analyze data from various sources, such as databases, Hadoop clusters and CSV files, and then derive insights displayed in dashboards it calls "stories," which include explanatory natural language narratives. The capabilities can help sales reps, agents, marketers and other roles improve customer interactions through predictive insights and prescriptive recommendations, Salesforce says.

Einstein Analytics also includes role-specific applications for sales, service and marketing. These existed prior to the rebranding, but going forward Salesforce plans to release more, including ones for industry verticals. It's also possible to build custom analytics applications with design, data preparation and data connection tools.

Salesforce is aligning Einstein Analytics with its Trailhead learning platform; there are a dozen modules available today there for developing analytic apps. It's also leveraging the ISV ecosystem in its AppExchange marketplace, which has generated more than 20 analytic apps so far, according to a statement.

All components of Einstein Analytics are generally available and pricing is as follows:

• Sales Analytics and Service Analytics are $75 per user, per month.
• B2B Marketing Analytics is $300 per month, for up to five users.
• Einstein Discovery is $75 per user, per month.
• Custom Einstein Analytics Apps are $150 per user, per month.

Salesforce first launched Wave in late 2014, but the analytics suite stumbled out of the gate due to factors such as complex packaging, high pricing and an architecture that was more like a traditional BI platform, not a set of plug-and-play applications. Salesforce ended up rebooting Wave the following year and attempted to remedy those problems.

Now, Einstein Analytics represents a third retrenchment of sorts, but one that will probably stick around for a while, given how much Salesforce has invested in the Einstein brand and underlying technology strategy.

"It made sense for Salesforce to consolidate all things analytics under the Einstein brand," says Constellation Research VP and principal analyst Doug Henschen. "As with Wave, Salesforce customers will Einstein Analytics to get beyond the basic reporting and data visualization built into Salesforce applications. Einstein Analytics supports deeper insight and analysis capabilities. Einstein Discovery adds automated insight, spotting trends, patterns and correlations of interest and offering recommendations with textual analyses that business users can understand. It’s a continuum of capabilities now all under the Einstein brand."

Now it remains to seen whether customers will find enough value in the Einstein Analytics suite, above and beyond Salesforce's core reporting and dashboard capabilities, to make what could be a substantial additional investment on top of their existing monthly rent. One sure way Salesforce can convince them is through numerous customer success stories; it still has several months to get some ready in time for Dreamforce.

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Examining Microsoft's Move to Join the Cloud Foundry Foundation

Chris Kanaracus

Managing Editor, Constellation Insights
Constellation

Chris Kanaracus is managing editor of Constellation Insights.  Insights delivers exclusive, daily analysis of breaking news across Constellation’s eight business research themes to Constellation Executive Network members.  Prior to joining Constellation, Kanaracus spent seven years covering the enterprise software industry for IDG News Service, where he frequently broke exclusive stories with a focus on end-customer issues. Kanaracus has also held various managerial and reporting roles at newspapers in New England since 1998. Twitter: @chriskanaracus , Title: Big IdeasConstellation Insights Insights delivers exclusive, daily analysis of breaking news across Constellation’s eight business research themes to Constellation Executive Network members. ...

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Microsoft is joining the Cloud Foundry Foundation as a gold member, in the latest instance of the company embracing open source under the leadership of CEO Sayta Nadella. The move also further cements Cloud Foundry's market position as a leading multi-cloud PaaS (platform as a service).

Azure's director of compute, Corey Sanders, explained Microsoft's rationale in a blog post:

The partnership with the Cloud Foundry Foundation extends our commitment to deeply collaborate and innovate in the open community. We remain committed to create a diverse and open technology ecosystem, to offer you the freedom to deploy the application solution you want on the cloud platform you prefer.

"It's a key and overdue move by Microsoft to join the at-the-moment winning PaaS platform," says Constellation Research VP and principal analyst Holger Mueller. Cloud Foundry "gives enterprises load portability over all the major cloud platforms out there: AWS, Google, Microsoft, and if you want, even IBM and SAP," he adds.

While Microsoft had already been involved with Cloud Foundry on a project level, and the PaaS has been available on Azure since 2005, joining the Foundation means more than the $100,000 annual membership fee. Microsoft will step up its involvement and investment of resources into Cloud Foundry's development, as Sanders described:

In addition to joining the Cloud Foundry Foundation, we are also extending Cloud Foundry integration with Azure. This includes back-end integration with Azure Database (PostgreSQL and MySQL) and cloud broker support for SQL Database, Service Bus, and Cosmos DB. We even included the Cloud Foundry CLI in the tools available in the Cloud Shell for easy CF management in seconds.

With our joining of the Cloud Foundry Foundation and the capabilities listed above I hope you find Azure offers the best place for deploying portable and open Cloud Foundry applications without any lock-in.

Cloud Foundry initially landed on Amazon Web Services, but AWS has yet to formally join the Foundation. That could obviously change at any time, but meanwhile, other likely candidates to join include Oracle, which offers a competing PaaS—that like Cloud Foundry, is polyglot but emphasizes Java—but also wants to drive workloads toward its general-purpose IaaS (infrastructure as a service) offering.

This week, the Cloud Foundry Foundation Foundation released a number of data points highlighting Cloud Foundry's momentum. Among the highlights:

• More than 5,000 developers have already gone through a certification program announced in March.
• There have been 51,000 code commits in the past year.
• Cloud Foundry has 35 percent of the PaaS market spanning both cloud and on-premises deployments.

Microsoft's announcements this week can be seen more examples of the company trying to be customer-friendly by embracing open source, but it's also pragmatic. Azure has become an increasingly popular target for Cloud Foundry deployments, and it therefore behooves Redmond from a business perspective to increase its investment in related tooling and integration.

But Cloud Foundry's ability to draw interest and support from so many cloud vendors also speaks to where buyers increasingly want to go.

"Cloud Foundry is the proof that enterprises want multi-cloud support, at least on paper," Mueller says. "They are not realizing this right away in most projects."

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