On the Margin
Whole Foods Market

Whole Foods Market

How will the Amazon-Whole Foods deal affect restaurants?

Blog: Giant acquisition will further the industry's rush into technology

This post is part of the On the Margin blog.

Last week, Amazon agreed to buy Whole Foods Market Inc. for $13.7 billion, in a deal that will almost certainly change the landscape of the grocery business for good. 

Its impact on restaurants will be far less obvious.

The deal appears likely to push the industry towards areas where it’s already moving, such as delivery and online ordering, while strengthening a competitor that has already been a major factor in the prepared foods business. 

There’s no question that the deal is monumental. Amazon is the country’s biggest online retailer, and has disrupted numerous industries in its more than 20 years in business. 

Amazon's acquisition of Whole Foods gives the grocer more than 450 customer-facing distribution centers in some of the best markets in the world, from where it can deliver groceries. Anybody thinking that Amazon’s entrance won’t have a serious impact on the supermarket industry does not know their recent business history. None of Whole Foods’ competitors will be able to match Amazon’s technological firepower.

Whole Foods has already taken potential share from the restaurant business. Its stores look more like food halls than grocery stores, something not lost as restaurants’ same-store traffic falls. Amazon’s ownership can only strengthen that competitor, adding technology in and out of the store to make it easier for consumers to get food.

Pair the acquisition with a rumored delivery company deal, and Amazon could force some serious changes in the food business.

Yet the restaurant industry is large and diverse. Because people eat at least three times a day, the frequency of potential visits makes it difficult for a single company to have much impact on the industry as a whole.

Whole Foods generated $15.7 billion in total revenue in its most recent fiscal year. By comparison, the 100 largest restaurant chains generated $257 billion in system sales last year. 

But the deal could well push restaurants even further into making their businesses more technologically relevant.

Indeed, the Amazon-Whole Foods deal, along with the Blue Apron IPO, demonstrates that the food world will increasingly be transacted over the Internet. While there are potential issues with Blue Apron's business model, there’s little question that the prospect of online ordered, home-delivered meals represents a potential threat to a restaurant industry that relies on convenience-oriented consumers.

Online restaurant sales were $12 billion in 2016, according to a Euromonitor study that Blue Apron commissioned for its IPO filing. That’s just 2.2 percent of overall restaurant sales.

Yet that number is expected to grow by 22.6 percent per year between 2017 and 2020, while the broader restaurant market is expected to grow by 1.6 percent per year over that time.

In other words, a lot more restaurant sales are going to come through apps — either third-party providers or from the companies themselves.

But that move has already been happening, as chains like Panera Bread Co., Starbucks Corp., McDonald’s Corp., and Domino’s Pizza Inc., among others, have worked to integrate more technology into their operations. And delivery is growing by leaps and bounds. 

An Amazon-owned Whole Foods, or an Amazon armed with Whole Foods brick-and-mortar locations, will only make it more important for restaurants to do more business online.

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.

Contact Jonathan Maze at [email protected]

Follow him on Twitter: @jonathanmaze

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