Why Is Amazon Buying Whole Foods?

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As my best friend Mike (the other guy who heads things up here) and I were “Foodery strategizing” at Darwin’s coffee shop on Mass Ave last week, we were as shocked as you were about Amazon’s proposed takeover of Whole Foods as it came across our twitter feed.  The $13.7 billion deal is not done yet but aside from an opposing Amazon shareholder vote or the unlikely possibility of a competitor out-bidding Amazon, they will likely own Whole Foods by the end of this year.  Amazon’s biggest previous buyout was in 2009 when they acquired similar online retailer Zappos for about $1.2 billion.  That was an internet retailer.  This is massive brick and mortar retail company.  Why buy a grocery store?  A closer look may help us understand the synergies.

 

Whole Foods is passionate about customer experiences.

From its ingredient standards to its core values to the way it treats its employees, Whole Foods pays close attention to the experience it creates for its customers.  From their transparency of food sourcing to their happy employees (they’ve made the Fortune’s “100 Best Places To Work List” for 20 years), nourishing and delighting their customers is the company’s foundation.  Amazon on the other hand claims to be “the world’s most customer-centric company” – paying close attention to massive amounts of data that provides deep insight into what we “Amazon Primers” want next.  Jeff Bezos, Amazon CEO says that when considering acquiring a company, he gets weak-kneed when he sees a company who is customer-focused.  Amazon has been pursuing food retail for some time – now they’re buying up the grocery chain with the most passionate customer base of any grocery store.

 

Competition Set In.

The brand America identifies as “America’s Healthiest Grocery Store” has another nickname “Whole Paycheck” – and for good reason.  Whole Foods is indeed the place of nourishment but other major grocery stores have caught on to Whole Foods’ consumer demand and started selling similar products for less.  It only takes time for the consumer at large to realize where their dollar goes farthest – thus Whole Foods’ same-store sales have been in decline for 7 straight quarters.  The stock price was once in the $60’s a few years ago.  The less competitive upscale brand has a company value that is now at a discount and Amazon sees an opportunity.

 

AmazonFresh needs sizable infrastructure.  

Amazon has tried to break into grocery delivery for nearly a decade, mostly with their flagship food delivery service, AmazonFresh.  The service is available in Boston – customers order online and cooler bags full of ice packs and fresh food get delivered. Amazon wants to revolutionize retail across many spectrums and food is $1 trillion global industry.  It makes sense that Amazon wants a piece of that market on some level.  With this acquisition, they could soon own over 400 physical stores in America’s most dense cities.  Will Amazon Fresh boxes get packed here? Will Amazon Prime customers be able to pick up their packages at the grocery store?  Will the food selections at AmazonFresh be more local, organic and sustainably raised?  Amazon hasn’t stated how this huge real estate grab will be leveraged but it will probably be some variation of these offerings.  

 

What does this mean to New England’s local food economy?

Global food distribution will probably always exist at some level.  Amazon has a way of making that distribution highly efficient.  The traditional grocery store industry we’ve all been raised on (I’m 40) is beginning to fragment.  In a few years, it could be totally different.  But regardless of how the food landscape changes, people will always want to purchase the freshest, best tasting foods they can buy.  It’s in our DNA!