AMZN - Amazon.com Inc.

[Guest longinvestor]

I think this is developing into a battle royale over logistics. Wal-Mart's e-commerce combined with it's local neighborhood presence is a not-so-small threat to Amazon. The various options of ship-to-home, ship-to-store, free two day shipping, no membership fees and a very capillary logistics edge have put Amazon on notice. Until recently Wal-Mart was seen as a me-too player in e-commerce. What's especially disruptive is that they address my family's $10,000+ annual spend in grocery, soaps, shampoos and such with their e-commerce. Amazon gets about a $1000 in electronics, phone chargers and such. Wal-Mart.com has everything that I've bought from Amazon. I'm likely in my last year of Prime membership.

 

While on the subject of capillary logistics, did Wal-Mart make a mistake in selling McLane to Berkshire? If deep and almost irreplaceable logistics is critical to eCommerce, McLane has to be a gem in today's context, no?

[benchmark]

I think this actually makes a lot of sense.

 

I didn't realize this, but I have been a Costco member for about 20 years. The things that I like about Costco:

a) price;

b) reliable quality of the product;

c) return policy

 

With WFM, they certainly have b). AMZN got c), and if it can also bring efficiency to get a) covered. Then with the additional benefit of delivery, then I don't think that I need Costco.

[shalab]

Here is an article on online grocery and the trends in the market.

 

http://www.cnbc.com/2017/01/30/online-grocery-sales-set-surge-grabbing-20-percent-of-market-by-2025.html

 

I think WFM will be more like Zappos than AMZN retail. This means - if you have prime, you get free shipping, there could also be fulfilled by AMZN deals. Essenitialy, the WFM CEO gets a free hand so long as they meet some financial metrics. There could be other synergies that may be brought to bear - remains to be seen.

 

From a market cap perspective, this is a small deal - ~3% of AMZN's market cap. However, from a sales and profit standpoint, they definitely move the needle significantly. This could also support AMZN's stock price in the coming year(s).

[shalab]

Amazon has (d) - convenience. Amazon typically has good deals on used books sold by third party but not very compelling otherwise.

 

I would say that Amazon return policy is not that great, I - one has to pay to return the package. Also, Amazon deals aren't that great - one can get better deals if one looks around a bit. Costco return policy on the other hand is terrific - many times one gets (a) - © in Costco. However, it is not very convenient as the stores near my house are always crowded.

 

I have costco membership - works great for diapers and some groceries in bulk. I don't have prime membership.

 

WFM experience is awesome - way above Costco. Their prepared meals are good - though on the pricier side. (good alternative to restaurants)

 

 

 

I think this actually makes a lot of sense.

 

I didn't realize this, but I have been a Costco member for about 20 years. The things that I like about Costco:

a) price;

b) reliable quality of the product;

c) return policy

 

With WFM, they certainly have b). AMZN got c), and if it can also bring efficiency to get a) covered. Then with the additional benefit of delivery, then I don't think that I need Costco.

[DooDiligence]

Amazon has (d) - convenience. Amazon typically has good deals on used books sold by third party but not very compelling otherwise.

 

I would say that Amazon return policy is not that great, I - one has to pay to return the package. Also, Amazon deals aren't that great - one can get better deals if one looks around a bit. Costco return policy on the other hand is terrific - many times one gets (a) - © in Costco. However, it is not very convenient as the stores near my house are always crowded.

 

 

Over the years, I haven't had to return too many items on Amazon but when I do, the experience has been effortless & I've always been able to print up a return lable with prepaid postage (if you're paying the return postage, you're doing it wrong.)

[clutch]

Amazon has (d) - convenience. Amazon typically has good deals on used books sold by third party but not very compelling otherwise.

 

I would say that Amazon return policy is not that great, I - one has to pay to return the package. Also, Amazon deals aren't that great - one can get better deals if one looks around a bit. Costco return policy on the other hand is terrific - many times one gets (a) - © in Costco. However, it is not very convenient as the stores near my house are always crowded.

 

 

Over the years, I haven't had to return too many items on Amazon but when I do, the experience has been effortless & I've always been able to print up a return lable with prepaid postage (if you're paying the return postage, you're doing it wrong.)

 

I agree. Sometimes I didn't even have to return the item and AMZN sent me refund / replacement.

[rkbabang]

Amazon has (d) - convenience. Amazon typically has good deals on used books sold by third party but not very compelling otherwise.

 

I would say that Amazon return policy is not that great, I - one has to pay to return the package. Also, Amazon deals aren't that great - one can get better deals if one looks around a bit. Costco return policy on the other hand is terrific - many times one gets (a) - © in Costco. However, it is not very convenient as the stores near my house are always crowded.

 

 

Over the years, I haven't had to return too many items on Amazon but when I do, the experience has been effortless & I've always been able to print up a return lable with prepaid postage (if you're paying the return postage, you're doing it wrong.)

 

I agree. Sometimes I didn't even have to return the item and AMZN sent me refund / replacement.

 

I agree with both of the above.  Although there are times when I just changed my mind about wanting a product and was honest about that when filling out the reason for return.  In those cases I've paid for return shipping.  But if there is any real reason at all for the return, then Amazon picks up the shipping.

 

[Liberty]

Ben Thompson on AMZN-WFM:

 

https://stratechery.com/2017/amazons-new-customer/

[DCG]

I would say that Amazon return policy is not that great, I - one has to pay to return the package.

 

 

I think this usually depends on the item and the reason you're returning it. Certain items, like shoes, have free returns both ways. If you're returning an item because the description on the website is misleading, or if there's a problem with the item, it's usually free. If you're returning certain items because you just changed your mind on it, they usually charge you return shipping.

 

 

What confuses me about the Whole Foods acquisition, is if Amazon's goal is to allow online grocery shopping and delivery, I'm not sure how Whole Foods' product selection would allow them to accomplish that. They are largely a specialty food store, and a store most people shop at in addition to a typical large supermarket. The majority of food items people want (and the prices they're willing to pay for them) are not items Whole Foods currently carries. Amazon has typically been focused on winning on price over everything else. I'm not sure how Whole Foods aligns with that.

 

Going to the supermarket isn't something people really mind doing. I know personally, at least for things like produce and meat, I want to see the item I'm selecting, and pick out the item based on things like size, and the condition it's in. Grocery stores rely heavily on impulse purchases. It's the well-known reason things like milk and bread are in the back of the store. Replicating that online would be incredibly hard. Showing a handful of 'related items' on a website is not the same as people walking past thousands of items in a physical store.

 

Shopping at Whole Foods is also a bit of an experience, and going to the grocery store is something people partially do just to get out of the house for a bit. The prepared food section also makes up a large chunk of Whole Foods' business. That would be tougher to deliver items to people at a profit.

 

There's also the issue that transporting perishable foods to people's houses is very expensive, and the amount of trucks with refrigerators and freezers is very small.

 

There's also the possibility (which I think is probably more likely) that Whole Foods will just exist as a subsidiary in mostly it's current form (similar to how Zappos still exists as its own entity), with some potential minor improvements in technology for things like checking out down the road. Its possible that Bezos just though WFM was selling cheaply enough where it's worth the risk in owning the the business as it currently exists.

 

 

 

 

 

[DooDiligence]

I would say that Amazon return policy is not that great, I - one has to pay to return the package.

 

 

I think this usually depends on the item and the reason you're returning it. Certain items, like shoes, have free returns both ways. If you're returning an item because the description on the website is misleading, or if there's a problem with the item, it's usually free. If you're returning certain items because you just changed your mind on it, they usually charge you return shipping.

 

if only investing worked the same way...

[TwoCitiesCapital]

I think this is developing into a battle royale over logistics. Wal-Mart's e-commerce combined with it's local neighborhood presence is a not-so-small threat to Amazon. The various options of ship-to-home, ship-to-store, free two day shipping, no membership fees and a very capillary logistics edge have put Amazon on notice. Until recently Wal-Mart was seen as a me-too player in e-commerce. What's especially disruptive is that they address my family's $10,000+ annual spend in grocery, soaps, shampoos and such with their e-commerce. Amazon gets about a $1000 in electronics, phone chargers and such. Wal-Mart.com has everything that I've bought from Amazon. I'm likely in my last year of Prime membership.

 

While on the subject of capillary logistics, did Wal-Mart make a mistake in selling McLane to Berkshire? If deep and almost irreplaceable logistics is critical to eCommerce, McLane has to be a gem in today's context, no?

 

I've also been price comparing recently at the direction of a friend and Wal-Mart is significantly cheaper on many household goods. Not by a few pennies, but by 10-20% in some cases. I was really impressed given that Amazon had done such a great job as billing itself as the cheapest alternative...

 

I do have a prime membership but I'm thinking about canceling it.

[rishig]

I would say that Amazon return policy is not that great, I - one has to pay to return the package.

 

 

I think this usually depends on the item and the reason you're returning it. Certain items, like shoes, have free returns both ways. If you're returning an item because the description on the website is misleading, or if there's a problem with the item, it's usually free. If you're returning certain items because you just changed your mind on it, they usually charge you return shipping.

 

 

What confuses me about the Whole Foods acquisition, is if Amazon's goal is to allow online grocery shopping and delivery, I'm not sure how Whole Foods' product selection would allow them to accomplish that. They are largely a specialty food store, and a store most people shop at in addition to a typical large supermarket. The majority of food items people want (and the prices they're willing to pay for them) are not items Whole Foods currently carries. Amazon has typically been focused on winning on price over everything else. I'm not sure how Whole Foods aligns with that.

 

Going to the supermarket isn't something people really mind doing. I know personally, at least for things like produce and meat, I want to see the item I'm selecting, and pick out the item based on things like size, and the condition it's in. Grocery stores rely heavily on impulse purchases. It's the well-known reason things like milk and bread are in the back of the store. Replicating that online would be incredibly hard. Showing a handful of 'related items' on a website is not the same as people walking past thousands of items in a physical store.

 

Shopping at Whole Foods is also a bit of an experience, and going to the grocery store is something people partially do just to get out of the house for a bit. The prepared food section also makes up a large chunk of Whole Foods' business. That would be tougher to deliver items to people at a profit.

 

There's also the issue that transporting perishable foods to people's houses is very expensive, and the amount of trucks with refrigerators and freezers is very small.

 

There's also the possibility (which I think is probably more likely) that Whole Foods will just exist as a subsidiary in mostly it's current form (similar to how Zappos still exists as its own entity), with some potential minor improvements in technology for things like checking out down the road. Its possible that Bezos just though WFM was selling cheaply enough where it's worth the risk in owning the the business as it currently exists.

 

My experience is contrary to what you stated:

 

* My family and everyone I know that shops at Whole Foods only shops at Whole Foods. We have not stepped into a Safeway (the alternate grocer in Northern California) in last 5 years. I have no need to ever go to a Safeway.

* Going to a supermarket is something I do mind doing. It is a waste of my weekend afternoon when I would rather be in the outdoors enjoying with my kids. We use Instacart ($100 annual subscription) to get Whole Foods grocery delivered to our door step every week. I have not gone to a Whole Foods store for last one year.

* Instacart uses Gig economy to get the good delivered from the store to home. When the shopper gets to the store, you can chat with them. They can ask for approval of replacement of out of stock items, you can say things like I want my avocados ripe. There is no delivery issue I have had in one year. No reason why Amazon can't replicate this experience.

* Having said all this, I am in Silicon Valley where people are more willing to try new stuff. Your points may be valid for a large number of WFM customers. Just saying, there is nothing technically challenging about this. If Amazon were to replica this experience and include it in Prime, I am willing to bet there will be more customers that would move over to this side of the world.

[DCG]

It's not necessary replicating the service that's the hard part; it's doing so profitably.

 

Case in point: Instancart isn't profitable and they don't even own the inventory.

[DooDiligence]

2014 report predicting Amazon's move (kind of...)

(courtesy of @BayLounge on Twitter.)

 

"Amazon could more than double its sales with just a 13% share of the nations grocery business"

 

Very provocative report with nuggets that are still valid for todays analysis...

FC_VLGEA_Focused_Compounding_Village_Supermarket_Singular_Diligence.pdf

[Jurgis]

Bought Nikon B700 yesterday on Amazon. No legit sources cheaper than AMZN. Bunch of places - newegg, Walmart, Amazon marketplace - offering the camera through 3rd parties at $100 cheaper. No guarantees that these ain't grey market/international-cheapo-version/opened/refurb. At least one review on Walmart.com claims Indian version in open box... so...

 

Amazon won this purchase from me after some hesitation.

 

Requoting this for people who claim that it's easy to find cheaper prices outside Amazon.  :-\

 

OTOH, yeah, grocery prices on AMZN mostly suck. But then groceries on AMZN are mostly sold by 3rd parties, so it's no wonder Walmart.com can sell cereal or coffee at grocery store prices, while AMZN 3rd parties are 2x more expensive.

 

Amazon Fresh, Amazon Now, Amazon Pantry are available in my area. I have not used any of them even with free $5-$10 coupons Amazon is giving me periodically. They all seem very limited so far.

[DTEJD1997]

2014 report predicting Amazon's move (kind of...)

(courtesy of @BayLounge on Twitter.)

 

"Amazon could more than double its sales with just a 13% share of the nations grocery business"

 

Very provocative report with nuggets that are still valid for todays analysis...

How in the world is AMZN going to go from 1.5% or 2% of grocery to 13% in a reasonable amount of time?

 

In my area, the nearest WFM is about 15 minutes away...you also better be good with your fists as it is not in a good area of town...

 

There are 4 stores in the Detroit area.  One downtownish, 3 on far West side of area.  I am going to guess that in the Detroit area, they have about a 2% market share, and that is being generous.

 

I used to live in Grand Rapids.  There is no WFM there.

 

I used to live in Toledo OH, there is no WFM there.

 

Look in the areas between these Midwestern cities and WFM are pretty sparse...lower than even a 2% market share.

 

I used to live in the Houston TX area...the nearest store was about 30 minutes away.  There were some VERY nice WFM in Houston...but there were also some "legacy" stores that were lacking on meat/produce/prepared foods.  They simply didn't have the space and were probably built out in the 80's or early 90's.

 

Can WFM/AMZN take market share?  Absolutely!  HOWEVER, they are going to expend a TON of capital to do so.  All the existing grocers are not simply going to roll over and take it.  They are going to fight back.  How effective they will be is open to discussion...

 

I think a lot of analysts live in close proximity to WFM and think that most of the rest of the country does so also.  Most people in the USA probably have never even been to WFM let alone shop there...

[JSArbitrage]

I think AMZN will follow the same strategy they've always used: Bring on AMZN itself as a customer, build out world-class modular logistics/infrastructure, then bring on third-parties to scale out the logistics investment.  For example, online retail was first customer of AMZN logistics.  Then once AMZN hit scale, they brought on thousands of third-parties (Fulfilled by AMZN).  Second, AWS was the first customer of AMZN cloud infrastructure.  Then they brought on thousands of third-parties (AWS by AMZN.) 

 

I think the WFM investment is going to go the same route.  Bezos will leave WFM mostly to their own devices but immediately start modularizing and upgrading WFM's logistics/infrastructure behind the scenes.  Then once AMZN has built world-class modular grocery logistics/infrastructure, open it up to third-parties.  WFM will just be another customer for AMZN. 

 

 

[maybe4less]

Amazon has (d) - convenience. Amazon typically has good deals on used books sold by third party but not very compelling otherwise.

 

I would say that Amazon return policy is not that great, I - one has to pay to return the package. Also, Amazon deals aren't that great - one can get better deals if one looks around a bit. Costco return policy on the other hand is terrific - many times one gets (a) - © in Costco. However, it is not very convenient as the stores near my house are always crowded.

 

 

Over the years, I haven't had to return too many items on Amazon but when I do, the experience has been effortless & I've always been able to print up a return lable with prepaid postage (if you're paying the return postage, you're doing it wrong.)

 

I'm guessing Shalab lives in Canada. There seems to be a big difference in the service level and pricing Amazon provides in the US vs. Canada. I often scratch my head when I see complaints like this about Amazon on this board, but then I realize the person complaining is probably living in Canada.

[rkbabang]

2014 report predicting Amazon's move (kind of...)

(courtesy of @BayLounge on Twitter.)

 

"Amazon could more than double its sales with just a 13% share of the nations grocery business"

 

Very provocative report with nuggets that are still valid for todays analysis...

How in the world is AMZN going to go from 1.5% or 2% of grocery to 13% in a reasonable amount of time?

 

In my area, the nearest WFM is about 15 minutes away...you also better be good with your fists as it is not in a good area of town...

 

There are 4 stores in the Detroit area.  One downtownish, 3 on far West side of area.  I am going to guess that in the Detroit area, they have about a 2% market share, and that is being generous.

 

I used to live in Grand Rapids.  There is no WFM there.

 

I used to live in Toledo OH, there is no WFM there.

 

Look in the areas between these Midwestern cities and WFM are pretty sparse...lower than even a 2% market share.

 

I used to live in the Houston TX area...the nearest store was about 30 minutes away.  There were some VERY nice WFM in Houston...but there were also some "legacy" stores that were lacking on meat/produce/prepared foods.  They simply didn't have the space and were probably built out in the 80's or early 90's.

 

Can WFM/AMZN take market share?  Absolutely!  HOWEVER, they are going to expend a TON of capital to do so.  All the existing grocers are not simply going to roll over and take it.  They are going to fight back.  How effective they will be is open to discussion...

 

I think a lot of analysts live in close proximity to WFM and think that most of the rest of the country does so also.  Most people in the USA probably have never even been to WFM let alone shop there...

 

"not the best part of town" (Is there a best part of town in Detroit?)

I don't know what WFM's Detroit strategy was, but usually you find WFM in the best parts of town or in the wealthier burbs.

 

[winjitsu]

I think AMZN will follow the same strategy they've always used: Bring on AMZN itself as a customer, build out world-class modular logistics/infrastructure, then bring on third-parties to scale out the logistics investment.  For example, online retail was first customer of AMZN logistics.  Then once AMZN hit scale, they brought on thousands of third-parties (Fulfilled by AMZN).  Second, AWS was the first customer of AMZN cloud infrastructure.  Then they brought on thousands of third-parties (AWS by AMZN.) 

 

I think the WFM investment is going to go the same route.  Bezos will leave WFM mostly to their own devices but immediately start modularizing and upgrading WFM's logistics/infrastructure behind the scenes.  Then once AMZN has built world-class modular grocery logistics/infrastructure, open it up to third-parties.  WFM will just be another customer for AMZN.

 

Your thoughts are very similar to Ben Thompson, a popular tech blogger! See

 

https://stratechery.com/2017/amazons-new-customer/

[GregS]

Interesting discussion (from January):

 

https://www.bloomberg.com/news/videos/2017-01-30/why-grocery-retail-is-the-holy-grail

 

 

h/t Bluegrass via Twitter.

[Liberty]

Interesting discussion (from January):

 

https://www.bloomberg.com/news/videos/2017-01-30/why-grocery-retail-is-the-holy-grail

 

 

h/t Bluegrass via Twitter.

 

Good food for thought (accidental pun).

[wabuffo]

Kinda interesting...  transcript of first townhall (with Whole Foods employees).  Led by WFM CEO John Mackey and AMZN CEO Worldwide Consumer (Jeff Wilke) including some employee Q&A.  Gives some early clues on how cultures will mesh -- even though these events can be highly orchestrated in terms of messaging.

 

https://www.sec.gov/Archives/edgar/data/865436/000110465917040187/a17-15393_1defa14a.htm

 

Also some published official Questions and Answers about the merger to WFM employees:

https://www.sec.gov/Archives/edgar/data/865436/000110465917039972/a17-15326_3defa14a.htm

 

wabuffo

[frugalchief]

We don't have a Whole Foods within easy reach of us, it's a good 30min drive into San Antonio, and I hate that traffic.  However, I'm excited to see what it will bring to the grocery market.  The wife and I were talking about this after the announcement.  She's the cook and plans the meals, but hates going to the grocery store (and not Walmart by any means).  Whenever we can get delivery in our area we will do it 100% of the time.  I order Reese's Peanut Butter Cup Minis off Amazon - I have to by the 4 pack, I pay the exact same amount as I would at our local grocery store or Walmart, and Amazon ships it overnight in the box with insulation and ice packs.  I truly believe using Whole Foods real estate will be a game changer in some way.

 

On another note - https://techcrunch.com/2017/06/20/amazon-prime-wardrobe/.  Curious to see how this does, but it seems a no brainer sales will increase due to keeping more, saving more.  And, I love it for exactly this reason....I haven't been to a "retailer" for clothes shopping in at least 1 year.  I hate "shopping" at these places.  Driving. Trying to find what I "want." Standing in line.  Driving back.  Complete waste of time.  I'll pick out what I want, then keep what I need.

 

I understand why some would still choose Walmart and others over Amazon.  I still price shop Amazon to Walmart at times, and other websites, but 99.9% of the time Amazon get's my business, because I know the value of their dependability.  I know it was brought up earlier, but I see Prime as saving me time.  Sure that "saved" time may be spent in front of a screen, but it also allows me to work more (work-aholic here) and spend time with family.  I value that time more, then trying to bargin shop and be inconvenienced by the "people of walmart."

 

Full disclosure:  I'm a millennial (almost 30). Early adopter of technology.  Besides fresh produce, we buy almost everything from Amazon.

[berkshire101]

Some interesting numbers about retail.

 

Retail’s Last Hurrah Against Amazon

https://frostyalpha.com/2017/06/22/retails-last-hurrah-against-amazon/