From Online Cart to Plate: What Amazon's Retail Domination Means
Total Page：16
File Type：pdf, Size：1020Kb
Journal of Agriculture, Food Systems, and Community Development ISSN: 2152-0801 online https://www.foodsystemsjournal.org From online cart to plate: What Amazon’s retail domination means for the future of food Carly Livingstone a * and Irena Knezevic b Carleton University Submitted December 11, 2019 / Revised March 16 and April 13, 2020 / Accepted April 13, 2020 / Published online September 1, 2020 Citation: Livingstone, C., & Knezevic, I. (2020). From online cart to plate: What Amazon’s retail domination means for the future of food. Journal of Agriculture, Food Systems, and Community Development, 9(4), 311–329. https://doi.org/10.5304/jafscd.2020.094.017 Copyright © 2020 by the Authors. Published by the Lyson Center for Civic Agriculture and Food Systems. Open access under CC-BY license. Abstract broker for consumer data. Although Amazon’s Amazon’s 2017 purchase of Whole Foods Market tactics have little to do with food itself, the seemed to suddenly make this commercial giant a implications to food retail and more generally to notable player in food retail. However, as we food systems around the globe could be demonstrate below, this development was neither momentous. sudden nor surprising. Amazon’s business strategy has paved the way both for this acquisition, and for Keywords the other surreptitious ways in which it is chipping Amazon, Big Data, Market Concentration, Whole its way into food retail. We argue that these Foods Market, Datafication, Food Retail developments are motivated by Amazon’s goal of becoming a one-stop-shop for all consumer goods Introduction for as many customers as possible, which would in When Amazon purchased Whole Foods Market turn allow Amazon to expand as the key global (WFM) in 2017, its entry into the fresh food sector and the addition of physical locations received a * Corresponding author: Carly Livingstone, MA Communication, much media attention. Forbes magazine pointed to Specialization in Data Science, School of Journalism and Amazon’s wealth of data as the key tool for Communication, Carleton University; 1125 Colonel By Drive; industry disruption, noting “Amazon is using Data Ottawa, ON K1S 5B6 Canada; +1-587-783-9056; [email protected] Note on COVID-19 b Dr. Irena Knezevic, Associate Professor, School of Journal- This research was conducted before the 2020 pandemic. The ism and Communication, Carleton University; 1125 Colonel implications of our findings are nevertheless still relevant, and By Drive; Ottawa ON K1S 5B6 Canada; +1-613-520-2600 perhaps even more significant now that more consumers ext. 4121; [email protected] appear to be using online platforms to shop for food. Volume 9, Issue 4 / Summer 2020 311 Journal of Agriculture, Food Systems, and Community Development ISSN: 2152-0801 online https://www.foodsystemsjournal.org to reverse-engineer retail” (Aziza, 2017, para. 3). analysis from the political economy perspective The visibility of this purchase made it seem like and draw on this tradition’s key concepts of con- Amazon was shifting gears, but a closer look at the centration and economies of scale. company strategy over the years reveals that this purchase was rather unsurprising. In this paper we Concentration explore Amazon’s foray into food retail to ask: Concentration refers to “the composition of a What drove Amazon to move into food retail and given market and especially its potential impacts on what steps has Amazon taken to enter and expand competition” (Howard, 2016, p. 3). Concentration into this market? What is enabling it to succeed in is a spectrum. At one end are freely competitive, monopolizing purchasing habits, and what are the fragmented or unconcentrated markets that func- potential implications if the power of the world’s tion on the basis of supply and demand, curbing largest internet company is not checked? We argue any one company’s ability to raise prices; at the that the complex interplay of technology, data other end are monopolies and oligopolies, in which capabilities, and lax regulatory regimes are both a single firm or handful of firms dominate, leaving driving and enabling Amazon to vie for consoli- consumers at the behest of the few corporations dated control of food retail. We observe, however, that have the power to set and control prices that this control is not born of Amazon’s desire to (Howard, 2016). dominate food retail. Instead, food retail is merely Regardless of industry, political economists collateral damage in Amazon’s larger strategy of agree that shifting away from competitive markets stealth. towards consolidation has political and economic We describe the context of digital retail and implications. Concentrated power means fewer digital economies of scale, and then trace Ama- people are involved in decision-making, particularly zon’s growth and foray into food retail. We argue around “what is produced, how it is produced, and that Amazon’s overall strategy was already well- who has access to these products” (Howard, 2016, suited to the risky business of online groceries. We p. 5). With larger firms emerging out of mergers suggest that this strategy, combined with the cur- and acquisitions, other firms struggle to enter the rent regulatory environment, is allowing Amazon market; if they do enter the market, prices are still to become the sole retailer a customer would need set by larger firms that then obtain greater percent- for all their consumer goods. Next, we discuss ages of the profits (Howard, 2016). As becomes potential implications of Amazon’s strategy for apparent below, Amazon’s size and scope call for food retail, and more broadly for food systems. We an analysis through the lens of concentration, conclude that Amazon’s development is troubling, casting doubt on e-commerce’s ability to facilitate as the consequences in this sector may be much free market competition. more far-reaching than in other retail sectors. Studies of power in the agri-food sector offer ample critique of concentration, and readers of this Background and Literature Review journal will be familiar with at least some of them. Political economists have been fascinated by Ama- Phil Howard has examined concentration exten- zon as the embodiment of market concentration sively (see Howard, 2014, 2015, 2016, 2018, 2019). and datafication of the consumer (Culpepper & Various authors have discussed the “hourglass” Thelen, 2019; Mosco, 2017; Srnicek, 2017). Politi- system, where multiple producers and consumers cal economy is “the study of the social relations, are connected through a handful of retail compa- particularly the power relations, that mutually con- nies and agricultural suppliers who control food stitute the production, distribution, and consump- economy and governance. This results in barriers- tion of resources, including communication to-entry for small- and medium-sized businesses, resources” (Mosco, 2009, p. 2). Political econo- and significant economic and cultural threats to mists ask, “how are power and wealth related and both consumers and producers around the globe how are these in turn connected to cultural and (Kneen, 1993; Lang & Heasman, 2003; Patel, social life?” (Mosco, 2009, p. 4). We approach our 2007). 312 Volume 9, Issue 4 / Summer 2020 Journal of Agriculture, Food Systems, and Community Development ISSN: 2152-0801 online https://www.foodsystemsjournal.org Economies of Scale and Digital Economies of Scale architectural advantages, design advantages, adver- Political economists dispute mainstream economy’s tising and branding, user learning, and path stance that concentration enables firms to take dependence and the dynamics of lock-in, arguing advantage of economies of scale. While “consum- that each of these factors “tilt the playing field” ers are often claimed to benefit from synergies and towards already powerful internet firms. Ultimately, lower transaction costs that are expected to result he argues that “large media firms still dominate, for from mergers and acquisitions” (Farrell & Shapiro, reasons economists will find both novel and famil- 2001, cited in Howard, 2016, p. 8), there was tradi- iar” (p. 5). As our analysis shows, these dynamics tionally little evidence that increasingly large and prove useful in understanding Amazon’s business complex organizations experience an increase in strategy. efficiency (Howard, 2016). The web-commerce boom of the 1990s and 2000s added the question Food Retail and E-Commerce of whether the original tenets of economics and Food retail largely evaded the e-commerce take- political economy would hold true in the digital over that transformed myriad industries in the age. Vincent Mosco asked: “are the forces of new 1990s. While electronics, books and other products communication and technology so revolutionary transitioned to the “new” economy of electronic that they are bringing about a radical restructuring and “frictionless” transactions that minimized costs and that will lead to the transformation or even the and promised a “better way of doing business for dissolution of capitalism?” (Mosco, 2009, p. 3). both retailers and consumers” (Morganosky & Early e-commerce scholars viewed e-commerce as Cude, 2002, p. 451), the grocery sector resisted this a “paradigm shift”: a “disruptive innovation . trend. The logistics of delivering fresh produce are radically changing the traditional way of doing substantially more complex, as the challenge of business,” and saw it as operating “under totally long-distance delivery of low profit–margin different