Bezos does not make mistakes. We, regular people, we make mistakes.
I am not going to gasp at $13.7B price tag. I am not in the camp that it was overpriced. I am not going to gasp at what it means for grocery stores nationally. I am not going to comment on share price and valuation. What I will share with you is that this merger, or purchase, will have a huge impact on distributors, liquor stores, brands, and the consumer. Basically the independent liquor store is officially on the endangered species list followed in a close second by the independent grocer.
This will go down as the biggest steal in history for Bezos. If you bought $1000.00 worth of AMZN when it went public, that $1000.00 would be worth $500,000.00 today. Not really a shabby ROI. The crap I bought for $1000.00 is worth six dollars. He is clearly smarter than I am. Here is why the deal is catastrophic for the off premise retailer, and here is some food for thought.
- Over 50% of Americans use Amazon once a week, while less than 2% of consumers use AMZN to purchase alcohol currently.
- USPS is the main delivery hub for AMZN, and historically has more loose adult beverage shipping rules that UPS or FedEx
- The average cost to ship a bottle of wine from NY to LA is $15.00. The average cost to ship a case of wine is $35.00, and champagne is nearly $50.00 coast to coast.
- The average off premise (non big box) retailer carries 500 items.
- Costco carries 200 items
- State Laws for selling booze will not change quickly, benefiting AMZN
Now let’s put that all in a smart blender, and here is what you will get.
Everything is sold online and specifically through Amazon. Online sales of booze has been a challenged for decades. The joke in the industry is that, the only person to ever make money at Wine.com was the person that sold the URL to Wine.com. Shipping is expensive, weight is heavy, bottle shapes are all different (making automation hard), very specific wines and vintages are changing, and wait time is long to conserve costs.
The acquisition takes all that away.
There are Whole Foods in 38 states. It is perfectly legal to ship to an end user within your own state. Costs are cut down by proximity. Time to deliver is cut down by store location. Price is cut down because Whole Foods and Amazon have effectively created the nation’s largest online/offline retailer. Grocery, which was the heart of the deal, will be ordered by Prime customers and so will the booze, now more than ever. Amazon Fresh quickly realized that while cereal and canned beans can easily be ordered by Amazon, the USA consumer was slow to adapt to the high margin items like meat and produce. Now, Whole Foods will get a 50% share of eyeballs. Whole Foods/Amazon will get a 50% share of consumers that want to round out their virtual shopping cart with adult beverage.
The independent grocer and liquor store owner will suffer greatly. No longer will the consumer stop by the wine shop on the way home from work, they will send it in advance to be delivered within an hour. That sale will be booked at AMZN and WFM.
I wrote a piece for Progressive Grocer many years ago about the untapped potential of the wine/liquor aisle within the grocery store. No one paid attention to it, and ownership only cared about the high margin walls of the store; produce, meat, fish, etc.
Amazon paid attention and now so will the independents as they fill for COBRA benefits.