What the Amazon-Whole Foods match-up means for the future of grocery
On Friday, June 16, 2017, Amazon purchased organic food purveyor Whole Foods. Amazon is making a $13.7bn bet that it can disrupt the traditional grocery store business.
The discussion that followed the announcement focused on the future of the grocery store. Grocery stock prices declined. Amazon’s stock increased. The New York Times featured an article about the challenges with grocery stores, not the least of which is the array of products that do not match what people actually want to eat today.
The grocery industry is undergoing seismic changes. Mainstream supermarkets like Safeway, Stop & Shop, and Kroger’s are being stressed from the low price end by brands such as Walmart, Aldi and Lidl. Purveyors of high margin foods such as Seattle’s PCC, Trader Joe’s, and Sprouts put pressure on the big brands by selling superior quality, organic, fresh, chemical-free items. Meanwhile, the mainstream brands are caught in an uncomfortable middle market squeeze. Target has cut back on grocery. Walmart is committed to grocery, and to online with the purchase of jet.com. They have the scale to fight back and adapt.
Amazon and Whole Foods is a brilliant combination. Both Jeff Bezos and John Mackey are passionate about their brands. Jeff Bezos’ driving passion is an unrelenting focus on very basic customer retail needs: selection, convenience (speed and delivery), and low price. John Mackey is passionate about organic, sustainably sourced foods with a mission under the heading Values Matter that says, “At Whole Foods Market, 'healthy' means a whole lot more. It goes beyond good for you, to also encompass the greater good. Whether you're hungry for better, or simply food-curious, we offer a place for you to shop where value is inseparable from values.”
Both brands will learn and gain from each other. Amazon will learn about traditional retail, and the customer behavior in traditional retail. Amazon will seize the chance to disrupt traditional with non-traditional approaches. By applying its superior technology and information management systems to traditional retail, Amazon will be able to provide superior, personalized, more digitized service, with better selection, convenience and lower prices. This will threaten the “traditional” retailer who does not have access to Amazon’s systems, power and scale.
Whole Foods has the opportunity to expand outside of the physical store. In 2015, it created a new store concept in order to attract millennials. It is hipper, cooler, a smaller format with less expensive prices. The jury is out on its performance. Now, rather than create a new physical store concept, Amazon will help Whole Foods to win online. One should not be surprised. In an interview with Annie Gasparo of The Wall Street Journal in 2015, John Mackey spoke of the new Whole Foods retail concept saying, “ You have to be willing to evolve with the marketplace, You can’t not do that because it might possibly take sales from your existing flagship brand.” He also said that Whole Foods is compelled to “keep up with times.” Well, Friday’s announcement is just that.
The Bezos-Mackey match-up of two powerful, passionate powerful brand minds has everyone buzzing about the future of grocery, and ultimately the future of retail. The future will see the merger of the best of online retail with the best of brick and mortar retail to provide lower prices, improved selection, better service, and increased personalization. Bezos and Mackey are leading the way forward.
But, there is one other seismic change that happened with this merger. On Thursday, June 15, 2017, John Mackey condemned the behavior of Jana Capital, the activist hedge fund, along with Neuberger Berman, that were hounding him to implement the type of financial engineering that destroys brands. According to John Mackey’s quote in Financial Times, “They’re greedy bastards, and they’re putting a bunch of propaganda out there trying to destroy my reputation and the reputation of Whole Foods, as its in their self-interest to do so. They just want to sell Whole Foods Market and make hundreds of millions of dollars, and they have to know that I’m going to resist it. That’s my baby. I’m going to protect my kid, and they’ve got to knock Daddy out if the want to take it over.” John Mackey lived up to expectations on Friday.
In a fast-paced uncertain changing world, you cannot forecast the future. You can see the future you wish to create. John Mackey not only snatched his brand from the hands of financial engineers: he sees the future he wants to create for Whole Foods.
Larry Light is chief executive of marketing consulting company Arcature