Future Branches 2019

November 18 - 20, 2019

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What Does the Amazon Whole Foods Purchase Mean for Bank Branches?

(Image source: adage.com)

On June 16th, ecommerce giant Amazon bought Whole Foods Market – the sixth-largest grocery chain in the US – for free. Ok, the actual price tag was $13.7 billion, but that’s basically what happened – about an hour after the purchase was announced, Amazon’s stock had risen by 3.3%, adding $14 billion to its value.

This is the opposite of what’s supposed to happen. Normally, after a major purchase, the acquiring company’s share price falls. But such is the might of Amazon, investors are clearly looking at the incredible amount of economic power that is now concentrated in Amazon’s hands, and believe that the move will stifle the competition in the retail industry, and perhaps the broader American economy as well.

A Dominance that Extends Far Beyond Retail

It’s not an understatement to say that the deal has left many in the retail sector quaking in their boots. Already, Amazon successfully competes in practically all segments – from books to home goods, electronics, music, clothing, groceries, and much more besides. Last year, Amazon sold six times as much online as Walmart, Best Buy, Macy’s, Costco, Kohl’s Nordstrom, Target and Home Depot did put together. In fact, it generated 30% of all US retail sales growth, either on- or offline.

But Amazon’s dominance reaches far beyond the realms of retail. The Whole Foods acquisition has many implications for the banking industry, too, and the surprise announcement has sparked more than a little concern amongst executives, who are now scrambling to assess what the future may hold.

While Whole Foods was up 27% to just below $42 per share following the announcement, stocks of traditional grocery stores like Kroger took a clobbering. Kroger fell 15%, while Walmart and Target ­– both of which have made big moves into grocery in recent years – slumped 12% and 5% respectively.

The falls have left bankers with branches inside of Whole Foods’ rival grocery stores concerned that some chains may be forced to start shuttering stores in order to remain competitive – and that puts a very large question mark over the future of in-store branches.

Threat to the In-store Branch

Many are predicting that Amazon will completely upend the grocery business in the coming years. This could happen in a number of ways. For starters, while most players in the grocery industry run on razor-thin margins, Amazon (somewhat notoriously) operates on a radical model whereby it doesn’t make any money. If Whole Foods starts accepting lower profit margins under Amazon, the upscale store will be able to start winning new customers from rivals with reduced prices – and that means in-store branches are well in line to take a hit.

SunTrust Banks, U.S. Bancorp, Huntington Bancshares, and PNC Financial Services Group are just some of a number of large banks that operate locations inside major grocery outlets around the country. Speaking to American Banker, Dave Martin, founder of retail bank performance company bankmechanics, said that his phone started to light up with calls and texts from bankers no sooner than the Whole Foods deal had been announced. The overwhelming concern, he said, was that grocers may be forced into a position where they have to close stores in order to remain competitive. Failing that, a steep decline in footfall was expected at the very least, which would threaten the very business model of the in-store branch.

“The knee-jerk reaction whenever you have grocers taking a hit like this is, ‘What is this going to do to the business?’” Martin said.

“One Should Always Fear Amazon”

By far the most acutely-felt fear, however, is that if Amazon is able to muscle its way into grocery – potentially mirroring the disruption it’s previously caused in the realms of publishing and many other sectors – what’s to stop it coming for the banking industry next? As Andrew Hovet, Director of Retail Banking Strategy at Novantas, respectfully warns: “One should always fear Amazon.”

Already, Amazon lends credit to its small-business clients – offering 12-month loans of up to $750,000. Since 2011, the company has provided $3 billion worth of loans to date, and now the Whole Foods deal could potentially open up new opportunities for Amazon to expand its lending business to the grocer’s suppliers, presenting a new threat to banks.

Dan O’Malley, CEO of Numerated Growth Technologies, said that the rising competition from Amazon in small-business lending should be pushing banks to invest in online commercial lending. “While nobody can touch banks’ pricing for real estate lending, if banks don’t invest in their C&I capabilities, other companies like Amazon can take business from them,” he said.

Is Banking Next?

In today’s world, omnichannel banking is what’s expected. There is of course much discussion about the future of the branch. However, no matter what’s said, and no matter how much head-scratching goes on concerning how banks are to continue to make the branch viable in the digital age, one thing remains certain – customers still want the option to visit their local branch in-person to discuss important financial issues.

“It comes back to that consumer need for something physical and tangible, at least in certain moments of truth,” Hovet said. But this means that it’s both a physical and digital presence that’s needed.

However, when it comes to omnichannel, consumers expect personalized and contextual experiences from banking of the same standard that they have grown used to in other industries. Presently, this exposes a gap in the existing financial industry that a data-rich tech company like Amazon is well-poised to fill. The consumer data that Amazon already has in its possession, its experience of turning that data into actionable growth opportunities, its artificial intelligence (AI) programs that predict consumer behaviors and throw up personalized promotions and recommendations – all of this is beginning to creep into the consumer finance space. And if Amazon does decide to barge into banking, armed with $21.5 billion in cash and short-term investments that it had at the end of the first quarter, its superior data capabilities mean that it certainly has the resources to do so.

The last word goes to Mark Hamrick, Senior Economic Analyst at Bankrate.com.

“One thing is very clear: Amazon is ingenious when it comes to possessing data, leveraging data and then figuring out new business lines with respect to the data they possess.”


Make sure to also download the Future Branches agenda to check out all of the great activities, speakers, & sessions planned for this year.