Amazon Will Free You From the Minivan

With his Whole Foods purchase, Jeff Bezos takes aim at groceries—and car ownership.

By Holman W. Jenkins, Jr.

A Whole Foods location in Eugene, Ore., June 16. Photo: Shalan Stewart/Zuma Press             

Amazon’s announcement on Friday that it is purchasing the Whole Foods grocery chain was puzzling to analysts; to the grocery industry it was unalloyed lousy news. Share prices of food retailers from Kroger and Costco to Wal-Mart dropped sharply in the moments after the news broke.

But maybe it’s the car industry and its frenemy Uber that should really be worried. Some see the deal as evidence of Amazon’s craving for a brick-and-mortar presence, but the fattest bogey out there is getting grocery customers out of their cars and in front of their laptops.

The average American makes 1.5 trips to the grocery store a week, spending an average 53 hours a year roaming the aisles. A British survey that studied in detail the reasons for car ownership—and second- and third-car ownership—found high on the list was the need to haul otherwise unmanageable grocery loads from store to home. Some 65% said grocery shopping would be “quite” or “very” difficult without a car.

In the U.S., an even more suburban and exurban society, the same is undoubtedly true. Trips to the grocery store are second only to physically transporting oneself to school or work as a reason for car ownership, and not as easily replaced. Traveling to school or work, after all, usually doesn’t involve dragging along 70 pounds of irregular small items in awkward bundles.

The British study found that even 23% of non-car owners used a car for grocery shopping, suggesting they borrowed a relative’s or neighbor’s vehicle. Add other food-related trips and the potential displacement is even larger. Daily trip logs kept by 7,665 Atlanta residents in 2011 showed, over a two-day period, 11,995 trips for food, 44% of which were to a store and the rest to some kind of eatery. Only 7% of these trips were made on foot.

Not that Mr. Bezos’s ambition is to substitute home delivery for outside shopping. His ambition is oriented toward accelerating consumer gratification however possible. If that means delivering an item to you wherever you might be by drone, he’s game. If it means setting up kiosks and lockers so you can grab in an hour what otherwise Amazon would have to ship you overnight, fine.

So what if some of this is uneconomic and effectively a loss leader? So what if free shipping encourages people to order inefficiently small numbers of items at a time? So what if lowering barriers to gratification engenders a higher-than-average incidence of buyer’s remorse and elevated product returns?

As every Amazon Prime subscriber discovers, even with these higher costs, the great genius of Amazon’s business model is to encourage us to buy more stuff and, gradually, relinquish the habit of using the web as a tool of remorseless price equalization.

Mr. Bezos figured out early that the great untapped gold mine of Amazon’s business model, “price discrimination,” would have to remain untapped. Price discrimination means using various methods to coax out of each customer the highest price he or she would be willing to pay for a given item. It’s a common and even efficient practice defended by economists elsewhere in the economy, but Amazon customers have made it clear their trust would dissolve if Amazon used its copious personal information to turn its logic on them.

In every other way, however, the Amazon promise to shareholders is founded on softening customer resistance to buying stuff without carefully comparing prices. Don’t kid yourself about this. You’re ordering sparkplugs? What a pain to get up and walk five feet to see if the cat food is running out. Just order more. Is the price on really a bargain even with free shipping? I guess I could Google for a comparison but why bother?

Whole Foods also built its success partly on, ahem, confusing customers about value—especially the value of the nutritionally meaningless term “natural.” But it’s doubtful Amazon believes now it can rescue Whole Foods’ own faltering success in this regard. The chain’s same-store sales have been falling for two years. To the very occasional visitor, it still attracts young affluents in puffy jackets and designer hi-tops looking for dates and picking out a dainty handful of items. But serious devotees of household logistics can now fill their carts to the brim with organic milk and free-range drumsticks at Safeway or even Wal-Mart.

Our guess surely is that Amazon, with $135 billion in sales, is not buying Whole Foods, with $12 billion in sales, to solve a Whole Foods problem. Only 3% of grocery shopping occurs online. The hassle of getting in a car and driving to a store on a crowded Saturday (when 41 million Americans do their grocery shopping) is one large area of anti-gratification in our retail economy. It’s an area where, despite the best efforts of retailers, consumers still are careful about price and have a schlepping motive to ask, “Do I really need this?” If this is not a challenge the Amazon business model was born to take on, what is? 

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