Predictions of the Effects of the Amazon Acquisition of Whole Foods
When news broke in mid-June that eCommerce behemoth, Amazon, was set to bid for retail food operation, Whole Foods Market, it caused a flurry of activity. To outsiders, the $13.7 billion dollar deal between Whole Food and Amazon seemed an unlikely pairing. It is akin to crossing a great dane and French bulldog. But in the sphere of mergers and acquisitions, Amazon’s takeover of the retail operation is probably a win for both companies.
Of course, a deal of this size affects much more than the two companies directly involved in the acquisition. In the case of Amazon and Whole Foods, there is a lot on the line. Everyone from grocery retailers to small merchants are affected. Many experts in eCommerce and retail predict that America’s shopping experience is about to change.
How the Deal Could Affect Whole Foods
Whole Foods has earned the moniker “Whole Paycheck.” The nickname addressed the company’s high prices for organic products and specialty food items. From the start, the company made a commitment to sell small producers and local providers. It successfully followed through on that vision. It is estimated that in any Whole Foods, an average 10% to 20% of products come from local growers and producers. The cost of this commitment was a huge part of the retailer’s profit.
This required the store to charge more for its products. Even items that can also be found in other grocery retailers are more expensive at Whole Foods. The Amazon approach to efficient and lean retail could address some of the price points at Whole Foods. That would mean good things for the pocketbook of regular shoppers at the grocery retailer. It could mean cutting out some of the small producers that are currently available at Whole Foods.
“Sometimes,Whole Foods has had a “little bit too much team member focus at the expense of our customers.” – Whole Foods co-founder and CEO, John Mackey, on the Amazon acquisition. Mackay will remain at the head of Whole Foods even after the acquisition is complete.
While Whole Foods is poised to win in terms of revenue, some of its producers will lose out. Over the years, the retailer has become a champion of putting small business, organic products, and local merchants over price. It earned the retailer a steady following of customers. These individuals are willing to accept the costs and Whole Foods earned a reputation as a hipster haven. It is difficult to predict if the Amazon mindset has room to consider small businesses that must charge a higher price point to survive.
As well, Amazon’s own commitment to automation could do away with several of the customer service representatives. These employees are a famous part of Whole Food’s brand. While cutting out part of Whole Foods’s image, it is also likely to cut costs.
What’s in it for Amazon?
On the other hand, Amazon is after an entirely different set of benefits. Acquiring Whole Foods gives the eCommerce company a brick and mortar competitor to Wal-Mart and provides access to data on shoppers habits and preferences.
Most of the Amazon versus Wal-Mart saga has been played out through eCommerce and online shopping. As online retailers gained ground on the budget focused Wal-Mart, the retailer was forced to reconsider its shopping experience, establishment of an online presence, and how to recapture the average American shopper. It appeared the battle was, in most part, between brick and mortar stores and eCommerce, with eCommerce clearly winning. This led Wal-Mart to acquire Jet.com in 2016.
However, grocery and fresh food presented an obvious problem for Amazon. Selling books, tea kettles, and tents online requires certain considerations, but for the most part these are the same across products. As Amazon launched grocery delivery through its Prime membership and its click and go stores in Seattle it hit several hurdles. Food, it seems, sells for very different reasons than books and outdoor gear. This is where Whole Foods comes into play.
The other player in the Amazon and Whole Foods deal is Amazon CEO Jeff Bezos, a unique personality and driving force behind the Amazon ethos.
The same people that want Amazon’s online goods require food purchases. Ownership of Whole Foods will provide the company with insight into how a subset of shoppers act and make decisions offline. American families visit the grocery store an average twice per week. That is more in-person touches than any other industry. Access to what consumers do in a grocery store and how they make decisions is a huge opportunity for Amazon. It could improve the company’s fledgling grocery delivery and increase sales in other areas.
This data is also important for the company’s overall and robust knowledge of American consumers. Ultimately, this is about data that Wal-Mart and other brick and mortar stores have, and Amazon needs to grab even more market share.
Where This Acquisition Can Take the Shopping Experience
More than any other M&A deal in 2017, Amazon’s bid for Whole Foods will affect eCommerce. First, the deal will encourage other grocery retailers to invest in the importance of an online shopping experience. There are already some unique competitors in the market, such as meal delivery service Blue Apron. Yet, this acquisition should push more traditional grocers to consider online ordering, coupons and online only deals, and a broader eCommerce presence.
If more of the grocery industry becomes part of eCommerce, this will certainly change how Americans shop for their weekly food. It currently seems counter-intuitive to go online for your bread, milk, and eggs, but if there were the right tools and technology to make this feasible and simple, more and more busy individuals are likely to choose this option. Particularly, if grocery retailers offer compelling reasons to give online ordering and delivery a try.
Yet, the Amazon acquisition of a brick and mortar retailer is about more than moving groceries online. It also shows the importance of an integrated shopping experience, for eCommerce and brick and mortar sellers. Basically, if you can do both, it’s preferable to consumers. There are times when next day delivery for grocery items doesn’t cut it. Whether it is additional guests coming for dinner or missing an essential ingredient for your weekly meal prep, food is one of those products that sometimes can’t wait.
When a company can span online and real world shopping experience, it allows shoppers to make a decision, based on their immediate needs. He or she can either jump online or in the car. With Amazon at their fingertips and Whole Foods a short trip away, there are multiple ways to obtain the same goods. This means more emphasis on how customers receive those goods than where they originated.
Changing Other Retailers
Lastly, Amazon’s acquisition of Whole Foods is likely to usher in a very different grocery experience. One of the changes to the grocery chain that wasn’t discussed above is to culture within the stores. Even with Whole Foods CEO John Mackey remaining at the helm, there are bound to be certain changes. Most of these to processes and procedures at your nearest store. One thing shoppers should expect is less emphasis on an experience and more on efficiency. This will change more than Whole Foods locations. Other grocery retails will be taking notes, and making changes of their own.
One of the biggest ways Amazon could cut the costs at Whole Foods is by slashing its culture. Instead, customers can look for technology and new ways to get you through checkout in speedy fashion. It will fewer personal touches and limited employee interaction. This is a major part of the Whole Foods identity. It is possible that Whole Foods will retain its “green” grocer atmosphere. But with an efficiency-focused company like Amazon in charge, it seems unlikely.
You are likely wondering how your small business or eCommerce company should prepare for potential changes to shopping, online or offline. There are ways to be ahead of the Amazon/Whole Foods acquisition. The experienced team at 1Digital Agency can help! Connect with us personally at www.1digitalagency.com/contact to learn more about how our talented eCommerce experts can keep your business ahead.
- Dan Kogan
- July 6, 2017