[Desk Column] Digital Transformation

[Asia Economy Reporter Myung Jin-kyu] It has been three years since Amazon acquired Whole Foods for an unprecedented $13.7 billion. This was the largest merger and acquisition (M&A) in Amazon's history and the first case of an online-origin company acquiring a large offline retail business. At the time, Amazon, which had no offline presence, secured approximately 450 Whole Foods offline stores. Whole Foods chose a different path from other large supermarkets like Walmart, Costco, Target, and Kroger. It sells only organic products ranging from groceries to cosmetics. Instead of plastic bags, it uses paper bags and shopping baskets, and minimizes packaging materials or uses only recyclable materials.

Several years ago, when I lived in the U.S., I did a week’s worth of shopping at Walmart for household goods, frozen foods, refrigerated foods, and snacks. The cashier put the items into nearly 10 plastic bags sorted by type. When I said it was okay to put multiple items in one bag, the cashier said, "It's free," and handed over the plastic bags without concern. Although convenient, the amount of waste generated after shopping was enormous. However, neither the cashier nor the customers worried about it.

In contrast, Whole Foods uses paper bags instead of plastic bags. Most shoppers bring shopping baskets labeled "Whole Foods Market." At Walmart and Costco, it is common to fill a large cart as if shopping for a month, but at Whole Foods, more people carry hand baskets. They buy only the amount they can store briefly in the refrigerator to get fresher products.

Therefore, many were puzzled when Amazon acquired Whole Foods. There were doubts about whether the intended synergy would be achieved by Amazon buying Whole Foods, which mainly sells organic products where freshness is vital. Several years later, Amazon now leads the online food distribution market by delivering Whole Foods’ organic products next-day in major U.S. cities.

Another noteworthy point is the adoption of cutting-edge artificial intelligence (AI)-based machine learning (machines learning autonomously). The AI developed to identify moldy groceries through cameras installed in stores automatically selects items that need to be discarded. By replacing some of the workforce with AI, Amazon has secured price competitiveness. This has ushered in an era where high-quality organic produce can be conveniently delivered to homes at lower prices. The impact on the U.S. retail industry is so significant that it is called the "Amazon Effect." To compete with Amazon, the U.S. grocery retail industry has collectively embarked on online transformation, entering a second growth phase.

This trend is continuing in South Korea as well. Last year, the three major large marts had an unusually difficult year. Emart, Korea’s representative large mart, recorded an operating loss for the first time since its founding. According to Statistics Korea, domestic online shopping sales in November last year exceeded 12 trillion won for the first time, reaching 12.7576 trillion won. Fashion items such as clothing and cosmetics accounted for 34% of total purchases, but the growth was particularly notable in food and food delivery services. Food sold online in November totaled 1.4943 trillion won, a 26.5% increase compared to the same period last year.

Online retailers like Coupang and Market Kurly, which offer 24/7 dawn delivery, are rapidly growing. Despite the rapid growth of the online market, the three major large marts are trapped by distribution regulation laws, suffering a double burden as they cannot deliver from their online malls on mandatory closure days. Considering that the decline in the performance of the three major large marts last year was due not to traditional markets or small and medium retailers but to large online retailers, and the positive effects of healthy competition among large corporations in the market, such regulations are inevitably excessive.

This content was produced with the assistance of AI translation services.