Amazon Deal Seen as Disruptor of Grocery Business

Isaac Cain
June 19, 2017

"The conventional grocery store should feel threatened and incapable of responding", Wedbush Securities analyst Michael Pachter said. The Whole Foods deal is an acknowledgment that it can't build its own physical footprint quickly enough alone. It announced Friday that it's buying online men's clothing retailer Bonobos for $310 million, following a string of online acquisitions including ModCloth and Moosejaw. And then they see this and they think "if online is going to kill offline, what am I doing in the sector?"

Amazon's $13.7 billion purchase of Whole Foods means the supermarket, and retailing overall, will never be the same.

Viewed over the long arc of Amazon history, Whole Foods seems like an unlikely fit.

Whole Foods is renowned in the United States for its high-quality premium organic and natural grocery products. Whole Foods has seen its sales slump and recently announced a board shake-up and cost-cutting plan amid pressure from activist investor Jana Partners. It has more than 460 stores in the US, United Kingdom and Canada, with leases to manage, windows to be washed, and employees who show up early to sweep the floor. "We're playing offense", he said. John Mackey will remain as CEO of Whole Foods Market and Whole Foods Market's headquarters will stay in Austin, Texas. Meijer also began a wide-scale rolloiut of a home delivery service through a partnership with mobile application Shipt Inc.

But Whole Foods will have to embrace Amazon's experiment-driven approach, and it's unclear how open its culture is to risk-taking and learning from failure. Simply this: Through Amazon's wide range of technology products, Whole Foods customers may be part of a new future where you can plan your grocery list through a voice assistant or a barcode scanner.

It also is expected to hasten existing efforts by grocers to make shopping more smartphone-ready, sell more private label and specialty foods and overcome the hurdles of home-delivery of groceries. In an email to customers, the company said it planned to maintain the same standards under Amazon, including bans on artificial flavors and colors. "Whole Foods was losing market share to Kroger", said Brittain Ladd, who until earlier this year was a senior manager working to roll out AmazonFresh globally.

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Amazon could also get a better picture of customers by marrying data from Amazon and Whole Foods' loyalty programs.

Barry C. Lynn, the Director of the Open Markets Program at New America, said on Friday that Amazon "already dominates every corner of online commerce, and uses its power to set terms and prices for numerous most important products Americans buy or sell to one another".

Adding to the potential threat, Amazon is known for offering discounts and it's likely to encourage more aggressive pricing at Whole Foods, Michelle Grant, head of retailing at market research firm Euromonitor International, said in a statement. Or someone who buys granola bars monthly from Whole Foods and paper towels every other week from Amazon might be offered the items in a single shipment, delivered to the door. Pachter said Amazon might get customers over those fears if they know the delivered items are the same as those they would find at the local store.

Those buildings come with warehouse space, truck loading docks, and experienced logistical workers, making them a flawless nucleus from which to expand grocery delivery, and eventually, maybe even delivery of other staples.

Whole Foods, while notably expensive, faced a paradoxical problem of its own popularity, which was easily imitated.

Amazon has been dipping its toes in groceries since it launched its Amazon Fresh delivery service a decade ago in Seattle, and expanded it to California, New York, and the Philadelphia area.

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