Whole Foods, Amazon and Reality

Two years ago, I wrote a piece about Whole Foods Markets in which I noted their innovative move away from selling only organic products toward “responsibly grown” items. This approach struck me at the time as a refreshing policy to position the company in way that would appeal to customers while giving the company a way to broaden their offerings and hopefully lower costs.

At the time, I recognized the problem for the company was that, true to form consumers were starting to place prices above purity. The entry into the organic marketplace by retail giants such as Costco and Walmart was putting increasing pressure on Whole Foods and the company was looking for ways to continue to be the retailer of choice for a certain type of shopper.

There was something that I didn’t fully anticipate at the time I wrote my essay. The cut throat rivalry between traditional retailers such as Walmart and online retailers like Amazon would come to encompass groceries.

While online ordering and delivery of grocery products has been a reality for over a decade, it was not fully embraced until very recently. This has much to do with our increasing dependence on mobile devices and most definitely hinges on the rapid adoption of artificial intelligence systems such as Alexa and Siri.

While astonishing, last week’s announcement of Amazon’s purchase of Whole Foods should not come as a shock. For Amazon, it’s a major power move aimed squarely at Walmart. In one move, the world’s largest virtual retailer took possession of over 400 brick and mortar stores located in affluent neighborhoods; essentially some 400 plus new and local Amazon distribution centers.

But what does it mean for Whole Foods? I’ve been on the inside of multi-billion dollar corporate acquisitions. Really big companies spend billions on slightly smaller companies because they like them and what they stand for, not because they want to destroy them. Acquiring corporations don’t usually want to mess with a formula that is working, they are looking to leverage a positive consumer image.

It’s not likely that Amazon will want to do anything to turn off Whole Foods’ rabid customer base. Amazon CEO Jeff Bezos said as when announcing the acquisition by stating, “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.”

For their part, Whole Foods management also sought to reassure by releasing a statement addressed “Dear Valued Customer” which read in part, “We will continue to operate our stores and deliver the highest quality, delicious natural and organic products that you’ve come to love and trust from Whole Foods Market.”

Two years ago, I wished Whole Foods well on its effort to maintain its image while trying to cut costs, but the Amazon deal shows that they did not succeed. Positive social images notwithstanding, this was Big Corporate Business. One big shark devouring a smaller shark.

John Mackey, Whole Foods Market’s CEO, was quoted as saying, “This partnership presents an opportunity to maximize value for Whole Foods Market’s shareholders, (emphasis mine) “while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers.”

Not only that, but the “Dear Valued Shopper” statement said that the agreement, “presents an incredible opportunity to take Whole Foods Market’s mission and purpose to new levels and will create significant value for our stakeholders” (emphasis also mine).

Two things of note here; 1) in corporate speak this means that this is all about investors, 2) nowhere is there any mention of employees. In this era of increased labor costs driven by rising minimum wages coupled with increasing automation, Whole Foods team members and those who care about them should be rightly concerned about the future.

For the rest of us consumers, it’s a win. Prices for responsibly grown products will go lower, new and innovative marketing practices will likely amaze us and Whole Foods will maintain its positive public image.

Just look at a company with a similar image – Ben & Jerry’s Ice Cream. Years ago, that scruffy Vermont company was purchased by Unilever, one of the world’s largest corporations. At the time, lots of hand wringing took place as their fans assumed it was the end of the company’s progressive political activism, but that didn’t happen. The brand is still outspoken and still delicious but it now enjoys the marketing and distribution heft they didn’t have before. I expect a future like this for Whole Foods.

This multi-billion-dollar acquisition confirms the trend I recognized two years ago. To maintain profitability Whole Foods needed to find a way to reduce costs and maintain their customer base. But in the end, they did the old-fashioned way, via a shareholder focused corporate takeover. 

Everything new is old again.