With the blockbuster news that Amazon is paying $13.7 billion to purchase Whole Foods, the e-commerce giant will get another piece of the grocery market and a bigger brick-and-mortar presence, providing the deal passes regulatory muster.
But thinking outside the box, Whole Foods could potentially end up as a new captive market for tech services offered by Amazon’s cloud computing arm: Amazon Web Services.
Getting food products to and from 465 retail locations across North America and the U.K. Poses a logistical problem that AWS tools can help solve.
To be fair, this wouldn’t be totally new business to AWS. Whole Foods is already allied with grocery delivery service Instacart, itself an AWS customer. (I nstacart also competes with Amazon’s own grocery delivery service.) And, Whole Foods also uses business software from Infor to manage its retail operations. Infor also runs on AWS data centers. And, as pointed out by CNBC, Whole Foods also uses some services from AWS competitor Microsoft (MSFT) Azure, according to a Microsoft case study.
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Amazon—which started out as an online bookseller but has expanded to selling everything from video to appliances to fresh groceries from its website—has also pushed into the brick and mortar space with its own physical bookstores.
Along the way, Amazon built a prodigious IT business, running out of a worldwide network of data centers. Customers can run their databases, their inventory systems, and even their email—all software that they used to run in-house—on AWS.
Amazon is also working on an array of logistics technology, including cashierless pay stations for its Amazon Go concept stores and delivery drones, which could find application at Whole Foods. And don’t forget the fleet of delivery trucks and planes, Amazon already runs.
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AWS, which is on track to sell $14 billion worth of services this year has no trouble finding new customers on its own, but could reap rewards for years to come from Whole Foods as an in-house customer.
But before we get ahead of ourselves, the real impetus here is consumable, tangible goods—meaning food, not technology.
Related: The Internet Had a Lot of Fun With Amazon Buying Whole Foods
“Think about grocery stores without checkout clerks where the basket of goods is recognized. It was tried several years ago but the tech wasn’t there yet,” said Tim Crawford, a Los Angeles-based analyst with AVOA. That’s where Amazon and Whole Foods could really come together, he said. So Amazon retail gets the big bump with some incremental benefit to AWS, he said.
What Amazon (AMZN) gets with Whole Foods is a better share in the grocery market, where it competes with Walmart (WMT), and other chains. Food, after all, is what people buy most often. And right now, Amazon doesn’t have much share there, says Holger Mueller, analyst for Constellation Research.
“AWS could get additional benefit from Whole Foods, but it would be a rounding error,” Mueller said.
The real story, in his view, is that Amazon needs to buy a brick-and-mortar retailer because it doesn’t understand real world retail. “Who would have thought that Amazon’s end game in retail is again about stores?” Mueller said.
Note: (June 16, 2017 1:00 p.m.) This story was updated to add additional analyst quotes and again on June 17, 2017 7:16 a.m. To add reference to Whole Foods’ use of Microsoft Azure services.
