Abacus: Amazon's Life Bundle for Affluent Americans
I study Economics and English at McGill University (Montreal, Quebec), and finals season for my peers and I tend to be an especially stressful time. The day before one of our hardest exams, my buddy decides to order his lunch from UberEats, the Uber-driven food delivery service that (now former) CEO Travis Kalanick whipped up to move his transportation empire into the food delivery service (especially profitable among millennials and college students). I was somewhat shocked to be honest, because I literally had gone grocery shopping with him the day before to pick up Stromboli frozen pizzas that cook in the oven in like 15 minutes or less. When asked why he didn’t just pop one of those guys in at 425 degrees, my friend responded that ordering was “just easier.”
This anecdote is especially relevant while thinking about Amazon’s recent $13.7-billion-dollar acquisition of the supermarket chain Whole Foods. Here, it looks like CEO Jeff Bezos is attempting to combine two huge upper-middle class economic sectors. I.e., next time Carol, from Greenwich, CT (median household income: $124,958), is shopping for her next set of yuppie groceries, she will be able to pick out her weekly grocery list on an Amazon-produced app and have it delivered to her door (and instead go pick up her daughter from soccer practice.) This hypothetical is more of a long-term speculation than a short-term realization, but it seems like a very logical next move for Bezos and co.
My long-term analysis for the future economic implications of this move: Bezos is going to try and re-invent grocery distribution, supply, and demand for the growing reservoir of upper-middle class, $4 avocado eating millennials, such as my UberEats v. Frozen pizza comrade. There are a couple of different avenues Amazon will take to truly bring producers and consumers in this market together in the easiest way possible. Firstly, and most obviously, let’s advertise to humanity’s inner sloth. As Derek Thompson writes in an article for The Atlantic, “E-commerce is soaring and food-delivery businesses are taking off because human beings are fundamentally lazy and they don’t want to leave the couch to buy stuff.” Also, Americans today spend less of their income on food than at any point before 1960. According to NPR, “the average share of per capita income spent on food fell from 17.5 percent in 1960 to 9.6 percent in 2007.” So, let’s re-invent the grocery business by “shortening the length and transportation time from the producer to the consumer.” Amazon can do this through not only appealing to those shoppers who can pick out all groceries from a mobile device, but also:
Amazon can also appeal to those shoppers who enjoy, or even need, the brick-and-mortar experience. Bezos can infiltrate this class of consumers by moving into their neighborhoods. Since this class of Americans are all probably very familiar with the Amazon brand, this CEO could possibly supply the majority of urban millennial’s avocado demand, whether it’s online or in one of their newly acquired stores.
Additionally, Amazon can also cut out the middleman in the foodservice industry, potentially leaving behind the forgotten American food service employee. “The grocery business is labor intensive. You need stockers, cashiers, meatcutters, deli workers, bakers, and layers upon layers of middle managers in the modern grocery store,” writes John Wasik in a Forbes article. Unionization rates in the foodservice industry are low, and the average worker at Whole Foods probably makes around $13 an hour. What I mean is: This is not a highly protected group of laborers. A former Whole Foods employee-turned-Vox contributor writes that many of his Whole Foods peers were on public assistance of some kind. At Amazon, you either are “working in a warehouse or crafting code,” and by creating a type of automated or streamlined distribution model via incredibly complicated technology (that Bezos obviously already has), you can totally re-invent the labor quotient. Who knows how many middlemen Bezos could lay off in favor of algorithms or robots.
All this represents is the newly introduced Amazon Life Bundle for Affluent Americans. Sure, groceries are “a terrible, low-margin business,” but Bezos is playing chess while we are all playing checkers. Amazon can move in on a growing class of upper-middle, young Americans, who are lazy and uninterested in interacting with the human workforce that used to cash them out at grocery (or all commercial) stores. Plus, by cutting out that human workforce, he’s leaving behind the forgotten middleman class, minimizing costs and merchandizing convenience for those who can have it. To me, this acquisition highlights potentially unparalleled economic movements in the commercial sector - one that is especially important for millennials who grew up in the class Bezos is targeting, and one that can also highlight wealth inequality in our Nation.
“At Whole Foods on Friday, beautiful boneless ribeyes were on sale for $11.99 a pound. While it would be nice to have that delivered right to the door, it would be even better if we got to know the person who delivered it.” -Nestor Ramos, The Boston Globe.