What does Amazon’s Acquisition of Whole Foods Mean for the Future of Grocery Shopping?
by Theresa Christine Johnson on 06/29/2017 | 9 Minute Read
You’ve probably heard this piece of not-so-little news: Amazon has acquired Whole Foods. And while the prospect of having fresh foods, specialty cheeses, and flax seeds delivered straight to our door sounds pretty amazing, we also wanted to dig a little deeper to learn what this acquisition might mean for the future of grocery shopping. We spoke with retail and branding experts Gregg Lipman and Todd Maute, Partners at CBX to gain more insight on what consumers can expect.
Considering the news, what do you think is the overall vision Amazon has in mind and is working towards for consumers?
Gregg: Amazon is continuing to expand its reach and ubiquity as a supplier in all aspects of a consumer’s life. They’ll continue to lead with their disruptive model—using and creating progressive technologies to make services and products that will further entrench themselves into a person’s life and transform not only the way people shop but how they live.
Todd: Amazon’s goal is to be the world’s foremost customer centric company. Its muscle has always been its well-oiled logistical operations powered by the most sophisticated of data mining capabilities. With the acquisition of a 430 retail-location strong behemoth that has mastered the food supply, processing and distribution chain end to end, Amazon will be able to utilize its tech capabilities to introduce a completely unique and customized grocery experience to the consumer—possibly one that includes never having to leave their house.
Additionally, the acquisition should be able to further Amazon Fresh service with Whole Food’s physical locations playing a big role. Shrink is a consistent challenge and is harder to control in an online-only warehouse driven format; it is much better suited for a retailer to manage that profit-diminishing factor. Additionally, if Amazon Fresh could incorporate Prime, Pantry and Dash into the mix, it could become a singular brand platform for Amazon’s food business. From a demographic perspective, the typical Whole Foods shoppers sits on the higher-income earning scale similarly to the Amazon Prime shopper thus continuing to add to their growing customer database.
It’s often hard for people to embrace change, and many people still relish going into a grocery store and picking out produce themselves rather than having it picked and delivered for them. What steps can Amazon and Whole Foods take to make this a more natural transition for consumers?
Gregg: Amazon’s logistical juggernaut and access to consumer data will add more dimensions to the purchasing experience. People still seek a human-driven experience and Amazon should do everything to ensure its consumers its brick and mortar presence is about accessibility and enhancement; there is no sacrifice or subtracting with its newfound physical presence and if anything, should be a deeper-data infused complement to its virtual counterpart.
Todd: Consumers today are accustomed, if not expectant of, external changes that affect their daily behaviors. From mobile banking to pharmaceuticals delivered within two days at your doorstep to the evolution of the gas station deli offering, culture and technology have accelerated the pace of change and primed the consumer’s desire for convenience, value and their willingness to accept the new.
Both brands would be smart to take steps to ensure consumers the acquisition won’t affect them in ways each brand has built their loyalty off. They need to re-affirm and emphasize that Whole Foods will continue its high standards of product quality and Amazon’s efficient and customer-centric services won’t be affected.
What are some of the biggest benefits consumers will see as a result of Amazon acquiring Whole Foods? What are some of the potential problems consumers might face resulting from Amazon’s acquisition of Whole Foods?
Gregg: The benefit is a more integrated consumer experience for Amazon and Whole Foods visitors where transitioning from URL to IRL (or the opposite) is more simple, seamless and backed with robust data on purchasing options, history, recommendations, etc. Additionally, the potential effects on manufacturers could also lead to a decrease of prices for the consumer. The potential problems may rest in fewer channel choices for the consumer should they decide they don’t want to go with an Amazon-affiliated option.
Todd: Both Amazon and Whole Foods have very sophisticated methods in capturing consumer data. Coupled with Whole Foods’s stringent quality standards and efficiency in product development, you have a recipe for success. Consumers could potentially have access to both better pricing (as there would be no more middle man) and wider selection of choices. Convenience, quality, variety and savings—what more can consumers ask for?
On the flip side, great vision executed poorly can be problematic. If Amazon and Whole Foods can’t integrate their unique brand assets seamlessly, it could result in turning the consumer off completely. History has proven that home delivery for food is challenging such as in the case of Webvan. While its concept was ahead of its time, it was riddled with issues on its approach to the market specifically:
- None of the executives understood the food business.
- It expanded too quickly
- It targeted the wrong consumer and wrong markets
- It built warehouses instead of leveraging existing infrastructures.
While the Amazon and Whole Foods merger may currently be blessed without these issues, both brands need to marry their assets quickly and flawlessly to convince consumers they can meet, if not exceed their expectations.
In what ways do you foresee any ways that this acquisition could backfire, actually hurting Amazon in the long run?
Gregg: If history is an indicator of the future, Amazon will see its failure as a learning experience and move on to the next (i.e. see Amazon Fire Phone). Amazon’s nature is to innovate quickly and while this acquisition is not technically an “innovation,” its brand could take a hit on the public relations front as a brand that can seemingly do anything.
Todd: Amazon has seen astronomical growth due to their bets on digitization and mobile and their continued portfolio diversification around the Internet of Things. It is a company not afraid to take risks outside its wheelhouse and invest in trends; leveraging what they do well and investing in the multi-trillion business of grocery is a wise bet. Even if they’re unable to convert the consumer, I’m doubtful it would drastically impact the overall Amazon brand in a negative way. Consumers will continue to flock to Amazon to purchase other things- perhaps one day cars or prescriptions? Amazon’s opportunities are endless.
What about retailers—what are some of the challenges they’re likely to face due to the acquisition of Whole Foods?
Todd: The market reaction to the Amazon announcement was not positive for other grocery brands. Retail across the board has been failing to keep pace with Amazon’s ability to sell goods online at the value consumers are demanding. Department store brands are rapidly disappearing because of their inability to respond to the requirement of digitization and embrace omni-channel and the only ones surviving, if not thriving, are value operators like Aldi, TJ Maxx, Home Goods etc.
If Amazon opts to focus on its own delivery service, Whole Food’s relationship with Instacart would be affected and it would ripple to brands like Publix and HEB, ultimately weeding out Amazon’s competition.
Additionally, the organics industry has seen enormous growth over the past few years. Supply has increased and traditional grocers like Kroger have entered the business in a major way specifically by creating their own billion-dollar private label brands. If Amazon and Whole Foods could bring better pricing and more access and convenience to the organics industry, it will most definitely impact traditional grocer’s attempt to capture more share of the consumer that desires more high quality and healthier food options.
How can other businesses plan to keep an edge and compete with Amazon and Whole Foods?
Todd: As much as consumers want value and convenience, they also desire a unique shopping experience. More grocers are increasingly investing in enhancing the shopping experience and growing the perimeter. If they can offer the consumer a shopping experience that can’t be had online, that is where they’ll be able to defend their market share. While this takes capital, time, and commitment, they cannot afford to not do so. Wegmans and Costco are interesting examples of brands providing unique shopping experience incorporating the love of food, the thrill of the hunt and an exploratory opportunity for the consumer shopping their goods.
With the business potential the acquisition can create, there will be a significant opportunity for markets to expand for niche brands. Smaller companies will have a less costly way to enter the market than traditional retail. Start-ups can benefit greatly by gaining access to massive distribution without the need for slotting fees and other costs burdening the growth of their business.
Last year, over 40% of online retail sales were on Amazon, and with the acquisition of Whole Foods we likely can expect this number to increase. But at what point does having one enormous retailer making such a significant portion of sales actually put society as a whole at risk?
Gregg: The effects of scale have implications. Technology has enabled both innovation and consolidation and as these tech-fueled companies continue to amass power and leverage, they sometimes tread dangerously with antitrust laws. It is the prerogative of the government to ensure these companies’ pursuit of growth and influence does not result in competitor manipulation and category monopoly.
Todd: With scale comes risk. When you put too many eggs in one basket, competition is inevitably eliminated and thus impacting quality for the consumer. However, on the flip side, size has the potential to drive down cost and also increases profits, which provides more capital for investment in continuous improvement. There is a case for both good and bad but regulation should be able to protect the consumer.
In what ways, if any, do you foresee Amazon’s acquisition of Whole Foods helping with food insecurity?
Gregg: If executed properly, Amazon will be able to leverage Whole Foods’s credibility in food quality. It will be interesting to witness both brands’ approach to fresh foods, food service and natural and organics at scale and observe whether expectations and tolerance of quality differ when it comes to different consumer segments.
Todd: If you look at the values both companies operate by, I would assume the impact on food insecurity would be positive and minimize growing consumer concern.
The Amazon brand is customer obsessed; they invent and simplify, hold the highest standards, think big, take action, are frugal and want to instill trust. Whole Foods is grounded in high product standards, caring for the community, satisfying and nourishing consumers and environmental stewardship. Together, they should be able to bring the best products to consumers at the lowest prices and in the fastest and most convenient ways possible.
As consumers, we need to realize that neither Amazon nor Whole Foods make everything they sell and thus do not have total control over the supply chain. But the strength and power the combined organizations could have will provide significant influence on their manufacturing partners. Therefore they should have a greater ability to enforce their values and high product standards, ultimately benefiting consumers and alleviating any concern over food safety and insecurity.
Photos courtesy of Whole Foods and Amazon.
CBXFounded in 2003, CBX is a brand agency with expertise in design, strategy, verbal identity and retail environments. Our client roster includes General Mills, Kimberly Clark, Sam’s Club, Clorox, Cricket Wireless, Mission Foods, and The J.M. Smucker Company among many others. Our offices are in New York, Minneapolis and San Francisco.