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Amazon is Buying More Than Whole Foods; It’s Getting Warehouses and Showrooms


Terrence Antonio James/Chicago Tribune/TNS

Amazon.com can ship books, furniture and clothing across the Pacific Ocean in what seems like a blink of an eye. But when it comes to delivering fresh groceries to your doorstep, the e-commerce giant’s logistical prowess falters.

That’s because the long journey of, say, an avocado from Mexico gets progressively harder the closer it gets to the final buyer. It’s more costly and time consuming to deliver individual pieces of fruit to many customers. The hurdle, which has long vexed online retailers and is one of the chief reasons the grocery business is notorious for its low profit margins, is known in the logistics industry as the “last mile.”

By acquiring Whole Foods, Amazon is buying not just an established, upscale supermarket brand, but also a vast distribution network of warehouses and more than 460 stores worldwide — replete with back rooms and cold storage — in some of the most affluent ZIP codes in the United States. That’s a significant boost in numbers for the Seattle company, which currently operates fewer than 100 distribution centers in the United States.

More hubs mean quicker and fresher delivery, which will bolster Amazon’s existing grocery delivery service, AmazonFresh. The service, which is offered to the company’s subscription Prime members for a monthly fee of $14.99, is available only in about 20 U.S. cities. While the bid for Whole Foods may not bridge Amazon’s “last mile,” it certainly brings it closer, experts say.

In the U.S. “this adds 440 refrigerated warehouses within 10 miles of probably 80% of the population,” said Michael Pachter, an analyst for Wedbush Securities. “More importantly, it puts refrigerated distribution within 10 miles of probably 95% of Prime members.”

The acquisition of the two companies means Amazon can vertically integrate a business it has dabbled in since 2007, when it first offered grocery delivery in Mercer Island, Wash. That’s a blow to rivals such as Target and Wal-Mart, which boasted that physical as one thing they had over Amazon. The stores allow people to try on clothing before buying, still one of the biggest hang-ups about online fashion, and they allow shoppers to choose the groceries they want, lest there be a bruised apple in their order.

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By David Pierson and Makeda Easter
Los Angeles Times

 

Distributed by Tribune Content Agency, LLC.



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