With Whole Foods Locations, Amazon’s Data and Pricing May Crush Traditional Supermarkets

Tech investor Eric Hippeau: 'This is not a good for them'

The new one-two punch may knock grocery stores out.
Sources: Getty Images, Amazon

On June 16, Amazon shook up the retail world by purchasing Whole Foods for $13.7 billion. The development got people talking about what the future of commerce holds, and whether Amazon, Google, Facebook and Microsoft would dominate for years to come.

Eric Hippeau, partner at New York City-based Lerer Hippeau Ventures, has been a tech industry power player for decades. He is a former publisher of PC Magazine and CEO of The Huffington Post while also serving on boards over the years for BuzzFeed, Yahoo and Starwood Hotels. More recently, he co-founded content distributor NowThis.

Eric Hippeau

Additionally, as an investor, he’s helped grow notable ecommerce brands like Warby Parker, Birchbox, Everlane, Venmo and Casper. So we chatted with Hippeau by phone to get his takes on what Amazon swallowing up Whole Foods could mean.

Adweek: Which kind of company should be the most worried by this development?
Eric Hippeau: Clearly the supermarkets and grocery businesses should be the people paying attention. This is yet another area where technology is invading traditional, relatively uninnovative businesses. So you think about going to the supermarket—when was the last time there was major innovation? There was the self-checkout things, and that may have been 10 to 15 years ago. Most supermarkets still have regular lines rather than self-checkout. Outside the products themselves, not much else has changed. Nobody really uses data, and nobody knows what your habits are. And all of that potentially Amazon can do, and it will probably attempt to do with Whole Foods.

And while Whole Foods is a relatively small player in the industry, the bigger players like Kroger, Albertson’s and Safeway and whoever else—they are definitely going to have pick up their technology game. They are going to try to keep up with Amazon. This is not a good for them, because their margins are already pretty thin. Amazon has a history of investing and running businesses at break even for growth. So they will be pressured on the technology side and on the margins side.

By margins, you are referring to pricing, right?
It’s kind of ironic because Whole Foods’ recent stumble has to do with the fact that their prices are really high. And you can now find organic groceries almost anywhere outside of Whole Foods. One has to assume that Amazon is going to correct that and lower the prices. That’s one pressure. The other pressure is that they will have to invest in infrastructure with tech.

Do you mean data-driven marketing and merchandising or in-store bells and whistles?
It might be all of the above. For sure, the first one, as [traditional supermarkets] are going to have figures themselves out as holistic [data players]. They are going to have to know the customer. They are going to have to be able to serve the customer, whether the customer is at home or at the office. That’s going to require a much bigger scale. It requires CRM [customer relationship management software systems] to begin with, and none of them have CRM systems. And as was reported, Amazon is experimenting with stores where there’s no checkout necessary because the technology will be able to recognize what the customer has in his or her shopping basket. And the customer will be charged directly through [his or her] Amazon account. So tracking who the customer is and making the store more convenient with technology.

Who wants to stand in line, right?
Yeah, already, I mean, my Whole Foods store is a good store, but the checkout takes 10 to 15 minutes.

What about Whole Foods locations providing distribution for Amazon orders?
I think that might be right. There might be people for whatever reason who don’t want their groceries or whatever delivered to their home, so the orders could be delivered to the store. The stores can also start to show more items from Amazon’s vast merchandise. We have some [ecommerce players] in our [investment portfolio] like Warby Parker, which now has about 25 stores. Casper is one of our companies and has established a couple of stores. You can see how direct-to-consumer ecommerce companies are finding the benefit of having stores. The store may not be where you get your Warby Parker eyeglasses, as they will still be shipped to you. They are a great place to check out items, see what you like or don’t like and ask questions. So I think the store space will be very valuable to Amazon.

Amazon has been described as an advertising sleeping giant. How might the Whole Foods purchase help target ads on Amazon.com?
They can know how you shop, where you live. They can bring the stores into the mix. You probably know better than me, but I don’t know if it’s a sleeping giant. Amazon already sells a few billion dollars of advertising.

They do, they do. People still somehow describe them as a sleeping giant, but that’s only because they are being compared to Google or Facebook.
They are not as sexy as Facebook, but they are very, very efficient.