retail news in context, analysis with attitude

Amazon announced this morning that it will acquire Whole Foods for $13.7 billion, in a deal that will dramatically increase the online pioneer's bricks-and-mortar presence while providing some relief for the organic grocer, which has been under pressure from shareholders to improve its performance.

The transaction will be all-cash, the companies said.

According to MarketWatch, "Whole Foods will continue to operate under the Whole Foods angle, and John Mackey will continue as chief executive of Whole Foods with its headquarters remaining in Austin, Tex. Both companies expect the transaction to close during the second half of 2017."

Mackey released a prepared statement that said, "This partnership presents an opportunity to maximize value for Whole Foods Market's shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers."

In its coverage, the Washington Post - which is owned by Amazon founder/CEO Jeff Bezos in a personal investment - writes that "Amazon has recently begun experimenting with bookstores and a small grocery, but this is by far its most ambitious move into physical retail.

"In Whole Foods, it is acquiring a company that has recently come under pressure from investors for its lagging performance. Whole Foods whose fleet of stores now numbers more than 430 locations has found it difficult to attract more mainstream consumers as Walmart and other large chains have stepped up their sales of natural and organic products."

“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” Bezos said in a prepared statement. "Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue.”
KC's View:
Wow. Didn't see this one coming.

(And I'd like to thank both companies for waiting until today to announce this deal. If it had happened yesterday, I would've missed it.)

To be honest, my first reaction was one of skepticism ... mostly because I'm not sure that this a cultural fit, and that Whole Foods' portfolio may be too narrow to make a real difference in Amazon's last-mile plans.

But ... reading the Washington Post story got me thinking about it in a different way. It may be that Bezos sees Whole Foods in the same way that he saw the Post - as an intrinsically viable business model that had not been able to adapt to an environment in which there is greater competition, and may have been unwilling to adapt to a digital economy that created entirely different expectations on the company. The Post suddenly is a vibrant, profitable company (though one must concede that it has been helped by a suddenly news-hungry citizenry ... but it has been well positioned to take advantage of this).

I had a chance to chat briefly with Tom Furphy this morning - the same guy who earlier this week engaged in an "Innovation Conversation" with me here that argued that traditional retailers take way too long to make the kinds of decisions they need to make in order to compete effectively. (You can read it here.) Tom's been making this point about the competitive landscape for years, and he told me this morning that in the long run, "this is a good day for consumers, a good day for Whole Foods shareholders, but a bad day for the big incumbent retailers." The game is changing fast, he said, and traditional grocers simply seem incapable of keeping up.

(By the is Tom's birthday, and this is a kind of birthday present for him, since this deal validates much of what he has been saying about Amazon for years, here and elsewhere. So, Happy Birthday, Tom!)

So what will Amazon do with Whole Foods? Well, to begin with, they're going to find ways to drive margin out of the business by being more efficient in buying, operations, and infrastructure. That is going to make Whole Foods a lot more competitive on price - which is going to have an impact on the likes of Kroger and Albertsons and every traditional grocer that has been able to steal market share from Whole Foods by offering lower-priced organics.

Can you imagine what would happen if Whole Foods announced the day after its deal with Amazon has been completed that every Amazon Prime member gets a five percent discount there? Whole Foods has been slow and clumsy in its ability to take customer data and translate it into meaningful customer communications that can then translate into sales ... but one has to imagine that this is low-hanging (organic) fruit for Amazon. They'll fix that fast.

Subscribe and Save for Whole Foods products? Ordering via the Echo/Alexa system and Dash buttons? One has to imagine that all this stuff is on the table. And there will be no dithering - just incisive analysis and fast execution ... with what at Amazon they call a Bias for Action.

There are other implications. Whole Foods has been one of Instacart's earliest and biggest customers. What happens to that relationship? Does it get replaced by Amazon PrimeNow? I'd think that this is likely ... and that there suddenly is a lot of pressure on the likes of Google and Kroger to consider buying Instacart, just to keep up.

And then, what is the reaction at a company like Publix, which has been expanding its relationship with Instacart? It might not mind a Google connection, but a Kroger tie-in? They'd at least have to think about that ... though it might make sense to start thinking differently about cooperating with the competition in order to more effectively do battle with the Amazon juggernaut.

There may be some Whole Foods customers who will see this as a negative, but no many, I'd guess ... because I betcha that there is a ton of overlap between Amazon Prime members and Whole Foods customers. (Amazon Lockers at Whole Foods stores may be as commonplace as checkout lanes.)

Here's a thought - when will the first Whole Foods store open without checkout lanes, once Amazon gets its Amazon Go technology worked out? I'm just asking...

Like, I said. Wow.

We keep saying it here, over and over. Big, traditional, incumbent retailers have to wake up. "Today is Day One," is the Amazon mantra, and the folks there are moving fast. If you do not have an effective and efficient digital/e-commerce/automation strategy, you are facing nine miles of bad road.

However the markets react to this deal in the short term, keep one thing in mind - Jeff Bezos thinks long-term. In doing this deal, he has crystalized in his mind how Whole Foods fits into the Amazon ecosystem in 2020 and beyond.

The question that traditional retailers in all segment sought to be asking is this:

What will the next deal be?