Even with Whole Foods,
Amazon would need many more warehouses to reshape
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[June 24, 2017]
By Jeffrey Dastin
(Reuters) - If Amazon.com Inc <AMZN.O>
hopes to revolutionize grocery delivery, then its bid to buy Whole Foods
Market Inc <WFM.O> for $13.7 billion will be just the start of a long
and costly process.
The e-commerce giant would need to add a large network of specialized
grocery distribution warehouses, former AmazonFresh employees and
logistics experts said. This is something Wal-Mart Stores Inc <WMT.N>
and other competitors have already done. Whole Foods, with a relatively
small distribution footprint of its own, does little to change the
picture for Amazon, they said.
Amazon has a little more than 3 million square feet of U.S. warehousing
dedicated to its existing AmazonFresh and Prime Pantry grocery programs
- a tenth of the warehouse space Wal-Mart has for specialized food
distribution, according to logistics consulting firm MWPVL International
"AmazonFresh really was for lack of a better word an after-thought,"
said Brittain Ladd, who until March was a senior manager for the grocery
delivery program, which launched in 2007.
One key to Amazon's success in general retail sales has been its speed
in delivering products to consumers, facilitated by warehouses located
strategically throughout the United States. As of 2016, the company had
about 100 million square feet of space in its fulfillment and data
centers, some of it outfitted with state-of-the-art robotics to boost
Facilities for distributing fresh food are far more complicated than
ordinary warehouses. A single facility can need a half dozen or more
temperature settings to house products from Popsicles to berries. Some
require certification from the U.S. Food and Drug Administration, and
extra care must be taken to keep shelves clean and prevent pests from
Whole Foods has over 1 million square feet of warehouse space for
distribution to its markets, and a chunk of its inventory goes straight
from suppliers to stores, MWPVL said.
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The logo of Amazon is seen at the company logistics center in
Lauwin-Planque, northern France, February 20, 2017. REUTERS/Pascal
"It's a peanut. It's nothing," MWPVL President Marc Wulfraat said of Whole
Foods' distribution. "If Amazon wants to become a dominant grocery company in a
short period of time, then there would be an investment required, and it would
Amazon, which did not return requests for comment, has not detailed its plans
for Whole Foods.
12 OR MORE GROCERY WAREHOUSES NEEDED
Amazon's fulfillment expenses jumped 31 percent in 2016 - a bit faster than in
prior years and faster than its retail sales growth - to $17.6 billion,
according to its annual regulatory filing.
Industry experts estimate the company would have to add a dozen or more grocery
warehouses, particularly if it wanted to supply Whole Food stores in addition to
homes. The cost to do that is unclear.
They said Amazon would likely continue to rely on United Natural Foods Inc
<UNFI.O> to supply Whole Foods with hard-to-source products, but would probably
aim to cut costs and handle more of the distribution for conventional items.
Even using Whole Foods stores to provide food for delivering to nearby urban
shoppers would have hard limits, since many outlets lack the floor space to
handle thousands of online orders.
"Itís a space issue for stuff coming through. Itís a labor issue for people
tripping over each other," said Tom Furphy, former vice president of consumables
and AmazonFresh, and now chief executive of Consumer Equity Partners. There
would also be a risk that "the quality starts to go down because the e-commerce
orders are getting better product."
(Reporting By Jeffrey Dastin in San Francisco; Editing by Sue Horton and Cynthia
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