Can they do it?

  • Walk out technology
  • Warning shot
  • Boiling point

Have you ever tried to calculate how long you spend each week at the supermarket?

There’s no way around it. Grocery shopping is a time consuming — and inefficient — activity.

Think about it.

You drive to the supermarket, you look for parking. Fetch a cart and roam around the aisles searching for what you need.

You put every single item in the cart. If you are anything like me, you grab a bunch of items on the go and then spend 5–10 minutes looking for where you left the cart with the rest of the stuff.

You take every single item out of the cart. You scan each item. You bag each item.

You pay.

You place all the groceries in the car. You drive back home.

And finally, you put every single item away.

I get tired just thinking about it…

Supermarkets, as a business, are not that efficient either. Just check out Coles or Woolies at around 9pm and you will see what I mean. They need an army of product stockers, price changers, meat attendants, deli attendants, cashiers…you name it.

Online delivery is not that great either. You need to order ahead of time, and products are usually more expensive — sometimes by 10%.

Supermarkets are an industry primed for disruption.

And Amazon [NASDAQ:AMZN] could be the one to do it.

More on this after the markets.

Markets

Over the weekend, the Dow Jones Industrial Average gained 24.38 points, or 0.11%.

The S&P 500 is up 0.69 points, for a 0.03% gain.

In Europe, the Euro Stoxx 50 is up 18.42 points, or 0.52%. Meanwhile, the FTSE 100 gained 0.60%, and Germany’s DAX index advanced 0.48%.

In Asian markets, Japan’s Nikkei 225 is up 119.48 points, or 0.60%. China’s CSI 300 is up 0.95%.

In Australia, the S&P/ASX 200 is up 15.86 points, or 0.30%.

On the commodities markets, West Texas Intermediate crude oil is US$44.57 per barrel. Brent crude is US$47.22 per barrel.

Gold is trading for US$1,252.89 (AU$1,644.58) per troy ounce. Silver is US$16.68 (AU$21.86) per troy ounce.

The Aussie dollar is worth 76.18 US cents.

Walk out technology

In a surprise move, Amazon has offered to buy Whole Foods Market [NASDAQ:WFM] for US$13.7 billion (about AU$18 billion), though the deal is still subject to approval by Whole Foods’ shareholders.

This could be a game changer for the industry. Amazon is looking to use technology to transform in-store experience and drive food prices down.

Dominating the food scene is the next step for Amazon as it seeks to dominate the whole shopping experience. In the last few years it has gone from book seller to expanding into e-commerce, fashion, cloud computing, online TV subscription services, and the Internet of Things — that is, bringing connected devices into your home.

Amazon entering the grocery market could turn the company into the go to store for everything. After all, that is how Amazon’s arch enemy Walmart [NYSE:WMT] did it back in 1988. It became America’s number one retailer by selling groceries and becoming a one-stop shop.

The interesting thing is that while Amazon is increasing its brick and mortar presence, Walmart is doing the opposite. That is, it’s getting online to increase competition with Amazon. Oops.

The news of Amazon acquiring Whole Foods sent ripples through the stock market. Customers are excited…competitors are wary.

As the Australian Financial Review reports:

News of the transaction hammered a range of retailer stocks in Europe as well as on Wall Street on the weekend and could have a similar impact in Australia.

In New York, shares in Wal-Mart dropped 4.7 per cent, leading the losers on the Dow Jones Industrial Average… The S&P 500 consumer staples sub index however shed 1 per cent, even though it has Whole Foods as a member. Shares in Whole Foods surged 29 per cent.

Among the biggest percentage losers were grocery store operator Kroger, down 9.2 per cent, and Costco, down 7.2 per cent. Drug store retailers also sank with Walgreens falling 5 per cent and CVS Health sliding 3.8 per cent. Target fell 5.1 per cent.

Whole Foods created a niche in the market for people looking for high priced, quality food products. Yet in the last two years it has faced stiff competition as grocery stores opened organic sections, selling at cheaper prices.

Amazon has already dipped into the grocery market. It has Amazon Fresh, a delivery service available in 20 cities, and Amazon Pantry, which lets consumers buy low priced home essentials like soda or cleaning products. But the Whole Foods purchase shows that Amazon was not growing as fast as it wanted in the sector.

The thing is, it hasn’t been able to crack fresh food, as consumers are less willing to buy those items online. Yet Whole Foods could very well complement that shortfall, as they specialise in fresh foods.

As the Australian Financial Review reports:

The Whole Foods purchase gives Amazon hundreds of physical stores, the footprint the company knows it needs. More than that, Whole Foods has mastered fresh food: The company gets two-thirds of its sales from perishables like fruits, vegetables and meats, while most supermarkets get only about 25 per cent of sales from those categories, according to Kurt Jetta, CEO of consumer products research firm TABS Analytics. And the Whole Foods deal gives Amazon strong industry knowledge, something it knows it’s lacking.

For Whole Foods, the acquisition is also a win.

Also from the Australian Financial Review:

Amazon and Whole Foods weren’t always seen as obvious partners, but Mackey has been under pressure to find an acquirer after Jana disclosed a more than 8 per cent stake and began pushing for a buyout. That prodding irked Mackey, who has referred to Whole Foods as his “baby” and to Jana as “greedy bastards”.

By enlisting Amazon, he gets to keep his job as chief executive officer of the grocery chain while giving the stock price a jolt. It jumped 28 per cent to $US42.30 as of 1:55pm in New York, bringing it close to the transaction price. Amazon shares gained 2.8 per cent to $US991.55.

Last year, Amazon unveiled Amazon Go, a brick and mortar grocery store with no cash registers. That’s right, customers can just pick up what they want from the store and leave. Amazon calls it walk out technology.

The way it works is shoppers scan their Amazon app when walking into the store. Once in the store, they get tracked as they pick up purchases, and the virtual basket adds the items up. Once they finish shopping, they can just leave the store. The technology adds up the items and bills them through their Amazon account.

Amazon could very well apply this technology to newly acquired Whole Foods stores.

And as Uber has proved, customers don’t really like to think about money or bringing out their wallet. Competitors would have to spend thousands on improving customer experience…and they could be screwed if they don’t.

A kind of invest or die situation…

Warning shot

In Australia, the news sent shares for Wesfarmers [ASX:WES], Woolies [ASX:WOW] and Metcash [ASX:MTS] down.

They are not only suffering the squeeze from German discounter Aldi, but Amazon is expected to enter Australia later this year.

Amazon has appointed CBRE to search for land for four warehouses. But Gerry Harvey of Harvey Norman thinks fears surrounding Amazon are an overestimation.

As he told Fairfax Media:

Amazon to my knowledge haven’t even bought a block of land in Australia. Let’s assume I buy a block of land tomorrow. I’ve got to buy it, pay for it, put in a development application. If that happens within three years, that’s very quick.”

For their model to work they would need 50 warehouses in Australia. Start with two — one in Sydney and one in Melbourne — and then it’s how do you deliver?

But former Amazon executive Brittain Ladd suggested that Amazon could try to use Metcash’s infrastructure to expand in Australia instead of building new infrastructure.

Amazon has preferred to buy existing infrastructure rather than build it when entering markets outside the US. The purchase of Whole Foods could very well prove that Amazon is changing its business model.

But, as I wrote in Port Phillip Insider Extra last week, Australian retailers should be fearing more than just Amazon’s entrance into the country. Subscribers to Port Phillip Insider Extra can find that in the weekly updates section of the website. If you haven’t subscribed yet…what are you waiting for? Go here to see what you’ve been missing.

Boiling point

On another subject, cryptocurrency prices have stabilised after a meteoric rise…and fall.

The frenzy seems to have stopped. But, as we have learned in the past weeks, things in the cryptocurrency world never stay the same for long.

Last week’s sell-off came in after fears of a bubble gripped the market. And investors are right to be wary. After all, cryptocurrencies have experienced crazy gains in the last year.

Bitcoin is up over 350% since last year.

Ethereum is up 3,000%.

With those gains, cryptocurrencies could be in a bubble. Or, it could be something else.

It could be that, as Sam Volkering, editor of Revolutionary Tech Investor, thinks, they are at a boiling point. Sam believes there has never been a better moment to invest in this new asset class than right now, and that Bitcoin could reach US$50,000!

As Sam said:

We’re at a boiling point…a key moment just before scores of cryptos spill over into mainstream mania. What a time to be an investor!

If you are interested in the massive potential gains on offer with cryptocurrencies — and can stomach the ride — Sam Volkering has spent the last five years studying every new development.

Make no mistake. It’s a risky market. One Sam refers to as the ‘Wild West’ of investment opportunities. But there could be huge gains to be made here.

And the thing is, Bitcoin and Ethereum are not the only cryptocurrencies out there. There are over 800 out there with more coming to market all the time. The trick to the game is knowing which ones will be the winners…and which ones will tank.

That’s where Sam comes in. To hear more about what Sam has to say about this new investment asset class, click here.

Cheers,
Selva Freigedo