“I would be very surprised if this is the final chapter of Whole Foods.” – Charles Kantor, Neuberger portfolio manager, to the WSJ.
The well-reported facts around Amazon’s $600bn expansion into grocery don’t need further air time. Since the news dropped at the beginning of the week, the online behemoth’s acquisition of the premium organic retailer Whole Foods has been touted as “terrifying”, a “head-on collision with Walmart”, even a “potential national emergency”. We feel differently, recognising it as not only a positive signal for the future of food retail but a watershed moment for both brands.
Amazon’s agenda with the acquisition is clear: expanded retail footprint, enhanced network of micro-warehouses, pick-up and return locations (or drone charging stations, for all we know), a fresh goldmine of data and, arguably most significantly, a ‘human face’ for a brand recognised primarily by its no frills delivery. As Dennis Berman, Financial Editor for the Wall Street Journal, tweeted, “Amazon did not just buy Whole Foods grocery stores. It bought 431 upper-income, prime-location distribution nodes for everything it does.”
The benefit for Whole Foods, known tongue-in-cheek as ‘whole paycheck’ to its US devotees, is less obvious, especially given CEO John Mackey’s early comments around “greedy bastard” investors pushing for him to sell. Despite the fact that the American grocery space has been hotting up significantly – the arrival of Aldi and Lidl represent a direct challenge to Walmart – one could justifiably assume that the premium nature of the Whole Foods experience would remain relevant with quality-seeking millennials as they come of family-size spending age.
The food philosophy that Whole Foods promotes represents quality assurance, and a direct connection between source, nutrition and health, as well as those cool niche brands it gives a platform to – and it’s clear that this is no fad with consumers. With the organic sector bucking the trend against falling sales in centre-of-the-store packaged goods – Mintel reports a growth in the sales of fresh prepared foods by nearly 30 percent since 2009 – an awareness of health is undoubtedly at the top of consumers’ agendas.
There is, however, now little differentiation in retailers offers in the grocery space. While they increasingly share the same strategies – limited editions, celebrity endorsements, and tiering their own brands – they benefit ultimately from having you in a protected environment that they can momentarily control. When you browse online, however, the values that live behind a retailer’s master brand need to carry much more weight. Given the equity and meaning with which Whole Foods is already imbued, it will, thanks to Amazon, undoubtedly be enabled to perform better in an online environment than its counterparts.
What the merger represents for Whole Foods future is, ultimately, hugely significant. The price cuts that Amazon’s skinny supply chain will afford finally give the retailer a way to undercut competitors and expand its accessibility and reach, while Amazon’s lightning-fast delivery and distribution systems give (long) legs to the Whole Foods mission of creating paradigm shifting healthier eating behaviours.
Whole Foods has also consistently brought progressive challenger brands to market – including one of its best sellers, plant-based foods techy favourite food brand Hampton Creek’s ‘just mayo’ – pointing to the untold influence that this deal could have, not only on the way we shop, but in terms of the very food we eat. Organic recipe boxes to compete against the likes of Hello Fresh would seem a natural next step, while Amazon’s frictionless, no-check-out food stores (current being trialled by employees in Seattle) close the loop of the ‘omnichannel’ shopping experience. Imagine direct purchases via an Amazon Pay one-step checkout button directly on the Like2Buy platform from your favorite chef’s Instagram.
So, Whole Foods brings the credibility, Amazon supplies the route to market. By making sure that better food can make its way to the consumer faster, the ultimate legacy of this merger might satisfy John Mackey after all, as higher levels of accessible health and nutrition could soon be closer to being made available to all.