The Amazon Effect

The biggest recent news in the food industry has been the proposed purchase of Whole Foods by Amazon. Given the immediate drop in stock market share prices of Sysco and US Foods, many industry observers must believe that Amazon is going to be a disrupter in foodservice as well as retail. We do not believe it will be the game changer that people expect, and we explain why below.

But first, a quick summary of “the deal”. Amazon will purchase substantially all Whole Foods retail locations, thereby giving it a retail footprint and a wholesale food distribution system. Expectations are that initial efforts will be focused on making Whole Foods more efficient and competitive in retail, followed by exploiting its legendary delivery model. It is also speculated that this will transition into foodservice.  JPMorgan says Amazon may look to build its own foodservice distribution business or buy an existing one.

We believe that Amazon will choose to focus on retail, not foodservice, for several good reasons. Amazon may well be able to make Whole Foods a viable competitor to large retailers including Wal-Mart, Kroger, and Safeway, but history shows it may not be easy. Perhaps the biggest advantages Amazon has are technology and money. Technology and investment spending can make Whole Foods more efficient in online ordering for both pick-up or delivery, as well as improving its infrastructure supply chain enabling competitive pricing necessary to gain market share. What’s at stake is the emerging digital market for groceries – orders made online and either fulfilled via delivery or at-store pick-up. That segment now is estimated at $20 billion in annual sales but is expected to be more than $100 billion by 2025.

Foodservice and independent restaurants represent an entirely different and more challenging opportunity. A brief glimpse back in time to 2000 when Wal-Mart was dominant and determined to take on foodservice distribution demonstrated how difficult it may be. Food delivery is highly regulated, making cross-over delivery options for many foods impossible. The fastest growing retail segment is not food delivery but on-line ordering for in-store pick-up. The foodservice research firm Technomic states that margins for typical food service distributors are in the low single digits so the margins in foodservice may not be attractive. Discount hungry mom-and-pop restaurant operators who do not value their time may already buy from warehouse chains such as Costco Wholesale and Wal-Mart to save delivery costs. Also, recent research challenges food on-line purchase growth estimates on the basis that increasing consumer interest in food quality and source will result in resistance to not personally choosing from the more than 40,000 grocery items available in the typical large supermarket.

Independent restauranteurs can use their advantages to combat retail intrusion from Amazon and others seeking to take greater share of customers food dollars. At Bellissimo  Foods, we believe that the independent pizzeria can best advantage themselves via their food products, and by developing some unique aspects to their service and dining experience. Dine-in or take-out restaurant patrons want a quality and fun dining experience; where they perceive value. What is important?

  • Food quality: Consistently serve menu items which taste and look good. Use quality ingredients, reducing cost where necessary via portion control.
  • Service: create a friendly place where staff smile and talk to customers, preferably by name.
  • Menu choices and variety: offer enough choice that people can experience the best you can offer; and hopefully new or seasonal additions will bring them back more often.
  • Cleanliness: amazing how many restaurants professing quality food are dirty inside and in the restrooms.
  • Be a neighborhood place, meaning get involved with local schools, churches, and other organizations where you can market yourself and participate in their various functions.

It is unlikely that Amazon’s purchase of Whole Foods represents a threat to foodservice restaurants or distributors. Limited choice will be a drawback to restaurants and geography to distributors. Even if Amazon eventually purchases a foodservice distribution network, it is difficult to see what advantages Amazon could bring to an already efficient distribution system without combining with non-food. At

Bellissimo Foods, we believe that the independent pizzeria can best advantage themselves via their food products, and by developing some unique aspects to their service and dining experience. Simply lowering prices and offering more promotion discounts is not a winnable strategy. Authentic Italian style ingredients and superior product knowledge is what sets Bellissimo Foods distributors apart and can be a great source of product knowledge.

Use superior quality ingredients, offer consistently better products, and create a friendly neighborhood atmosphere that draws the customers back. Your advantage will help you build your business through good times and bad.

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