SpartanNash hops on the Amazon supply chain bandwagon

Discussion
Photo: Getty Images
Jun 01, 2016

Grocery wholesaler SpartanNash has a new account – Amazon.com – that has its management and shareholders pumped up. SpartanNash’s share price jumped nearly six percent yesterday as news spread that the company is supplying Amazon in the e-tailer’s push to become a major force in the grocery business.

According to an earnings call with analysts last week, SpartanNash is currently supplying Amazon with dry and chilled items for its Prime program. Early success with SpartanNash has led Amazon to explore expanding its relationship with the wholesaler for products sold as part of its AmazonFresh initiative, as well.

SpartanNash COO Dave Staples (via Seeking Alpha) called Amazon “a relatively new account” and said “volume has been greater than we expected and we believe that it has significant growth potential.”

DISCUSSION QUESTIONS: What do you make of SpartanNash’s deal to supply Amazon.com? How might the decision affect SpartanNash’s relationship with its current customers? Do you see the measure as a stopgap for Amazon or a longer-term decision to grow its grocery business with the help of a third-party?

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Braintrust
"As soon as Amazon can lower its cost structure by owning the supply chain, it will."
"Of course this is a super exciting opportunity for SpartanNash, but George raises a good question about relations with other retailer customers."
"Amazon is not just another customer."

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7 Comments on "SpartanNash hops on the Amazon supply chain bandwagon"


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Steve Montgomery
BrainTrust

Adding Amazon as a customer allows SpartanNash to better utilize its existing warehouse infrastructure the same as it would if it added any customer. However, Amazon is not just another customer.

I admit that I am not familiar with SpartanNash’s customer base, but I assume that they try not to have two customers that compete head-to-head. By adding Amazon they have added a customer that potentially competes with many of their current customers.

The question comes down how their current customers view Amazon. If they see it as a real threat then I would expect them to explore a relationship with other distributors.

Tony Orlando
Guest

Amazon will take advantage of this until they can purchase their own food warehouses and use this to figure out how to do it better for them. SpartanNash, in my opinion, will upset some of their customers, but in this economy SpartanNash needs to grow and they are taking a risk of losing more business than they think. Just a thought here, but maybe the shareholders are thinking Amazon will buy them out, and they would be rewarded handsomely for joining up with them. Who knows, but the only ones left in the dust will be the independents that are serviced by them.

Ross Ely
Guest

Amazon has strong momentum in the grocery space, and SpartanNash is wise to partner with them in a supply agreement. SpartanNash’s current customers, including its captive stores, have to realize that Amazon is a major player in grocery and would be well-advised to pursue e-commerce strategies of their own.

SpartanNash should proceed with caution however, as Amazon has a history of disintermediating its suppliers and could eventually build relationships directly with the food manufacturers.

Dan Raftery
Guest

Of course this is a super exciting opportunity for SpartanNash, but George raises a good question about relations with other retailer customers. As has been the case with manufacturers selling to or through Amazon, retail price will be the big issue initially. However, SpartanNash should be a bit invisible here, at least for a while. Manufacturers will hear the gripes.

The bigger question is, what will become of their relationship with Amazon after volume ramps up? I see two scenarios — one where Amazon takes the buying in-house, dropping the wholesale tier; the other where Amazon absorbs SpartanNash. Or maybe this is simply a step toward a robust range of private label?

Charles Whiteman
Guest

Amazon is good at leveraging others to help them build businesses more quickly than it could organically. However, controlling the supply chain and user experience is Amazon’s “True North.” As soon as Amazon can lower its cost structure by owning the supply chain, it will. Maybe this will work out well for SpartanNash (e.g., acquired by Amazon), maybe not (e.g., blow back from current wholesale customers and no lasting business from Amazon).

It is interesting that SpartanNash’s distribution footprint is mostly rural “middle America,” whereas I would expect Amazon’s grocery delivery service to have the greatest appeal on the more heavily populated coasts. Not sure if Amazon is planning to handle the coasts another way or if Spartan is planning to expand its distribution geographically.

James Tenser
BrainTrust

Well I suppose Amazon has to source its grocery products from somewhere. This naturally raises the question: Where has it been obtaining grocery merchandise prior to this announcement? Has anyone checked in with other large grocery wholesalers?

I think concerns about Spartan competing with its own customers are possibly overstated in this context. The marketplace is very fluid these days, and Amazon is going to find a way to pursue its interests with or without Spartan’s help.

The Amazon-buys-Spartan scenario doesn’t quite feel realistic for me, since such a deal would come with 160 corporate-owned stores that don’t fit smoothly into Amazon’s core concept. I’d put my money on Amazon-built D.C.s after a little while.

Ken Morris
BrainTrust
Ken Morris
Managing Partner Cambridge Retail Advisors
5 years 11 months ago

This looks like a great deal for SpartanNash as it will provide a nice infusion of immediate revenue. SpartanNash appears to be more regionally focused on the Midwest and Eastern U.S. and they don’t supply products to any of the top 10 grocery chains. SpartanNash’s client base for distribution services is primarily independent grocers and U.S. military commissaries. This will make it less risky to add Amazon as a new client as they don’t have to be concerned about alienating any of the grocery giants.

It’s a little surprising that Amazon selected SpartanNash as they will probably need to partner with another distributor for the West Coast. Maybe SpartanNash wasn’t their first choice, but since SpartanNash is smaller than some of the mega grocery distributors, Amazon can have more leverage in their demands (service delivery requirements and pricing).

It will be interesting to see if Amazon will eventually bring the grocery distribution in-house. Never a dull moment in retail!

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Braintrust
"As soon as Amazon can lower its cost structure by owning the supply chain, it will."
"Of course this is a super exciting opportunity for SpartanNash, but George raises a good question about relations with other retailer customers."
"Amazon is not just another customer."

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