A little over 4 years ago, I went to Whole Foods for the first and last time. Baffled and bemused by the multitude of delicious looking dishes, I played along as the assistant loaded up my box with lashings of greenery and stuck barcode after barcode to the outside with unbridled enthusiasm. By the time I worked out what was going on, my wallet was £20 lighter.
Whole Foods came back into my life in dramatic circumstances last week when it was bought by Amazon for just under $14bn, the retailer’s largest ever acquisition. Even though Whole Foods controls just 1.2% of the US grocery market and has only 460 stores globally, the deal has sent shockwaves through the retail world, wiping $11bn off the market value of rival Walmart.
The takeover is another sign of the ambition of founder Jeff Bezos, who, even from Amazon’s relatively humble beginnings as an online bookstore, aspired to build an online emporium catering to every conceivable customer need. Amazon has been trying to break into the $780bn grocery market since an unsuccessful dot-com gamble on start-up homegrocer.com in 1999. The Whole Foods takeover augurs better, but the purchase raises as many questions as it answers about Amazon’s future.
Where is the golden egg?
Today, boasting best-in-class logistics networks, data platforms, and video content, Amazon has shown considerable aptitude at buying and integrating the parts of the chain that it doesn’t already own. Once touted as being the death knell for bricks and mortar shops, Amazon has surprised many by recently increasing its physical footprint, opening high street bookstores in several US cities. Amazon could benefit from Whole Foods’ fleet of urban locations that can double as warehouses that make use of a famed cold storage supply chain. On the other side of the coin, Amazon can instantly improve the grocer’s fulfilment options in a market where consumers are increasingly seeking convenience.
An element of the deal that has customers’ tails wagging is whether Whole Foods may become the first commercial testing ground for Amazon Go. Go is a recent proposition dubbed the ‘robo-store’ where computer vision and sensors are used to track what customers place in their bags and charge their Amazon account accordingly, allowing them to walkout without having to queue to pay. At the moment Go exists purely in test form for employees near Amazon HQ in Seattle but bringing this technology to Whole Foods would certainly be a strong differentiator in the market.
A fresh start?
One question mark hovering over Amazon is whether or not it can be seen as a credible retailer of fresh produce. Last year Amazon launched the Amazon Fresh proposition in the UK after signing a wholesale supply deal with Morrisons (think Ocado’s offering of Waitrose products). Like in the US, the take-up hasn’t been overwhelming. Whilst millennials are very comfortable buying some groceries online, many prefer to buy meat, vegetables, bread and milk from a bricks and mortar store. Bezos himself has opined that ‘brand names are more important online than they are in the physical world’ and, as one Whole Foods shopper was keen to point out, ‘Amazon aren’t exactly synonymous with organic, high quality food.’ The big challenge therefore will be layering convenience of delivery over the top of the current proposition without negatively impacting the strong Whole Foods brand and reputation.
In 2015, Whole Foods’ CEO John Mackey predicted that the move into grocery delivery would be Amazon’s ‘Waterloo’. One thing is for sure, it will be exciting to follow. Who knows, I may even get a lunch box delivered.