Amazon and Whole Foods: Hype vs. Facts

Amazon and Whole Foods: Hype vs. Facts

Moments like this are rare in our business: last week, even in an era full of dramatic news cycles, nothing garnered more attention than Amazon’s acquisition of Whole Foods.

The coverage ranges from salient to hyperbolic. Some of it makes sense, and some of it is pure click bait. While Bezos has been mute about his plans for Whole Foods, the world around him is predictably predicting exactly what he will do.

So, headlines like “Why Amazon Bought Whole Foods” are head-turning and click-worthy. They’re also entirely speculative. I thought it would be a good time to dig into what we DO know (aka facts) and measure the against what they COULD mean about the most talked-about merger of 2017.

 

First: Just the Facts

Amazon is acquiring Whole Foods at a share price of $42, a nice 27% hike from its then current trading value. What that means in real dollars: Amazon got Whole Foods for a song. Back in 2014, a mere three years ago, Whole Foods’ high hit $65/share, and even as recently as early 2105, it hovered around $50/share. With the speculation du jour being that Amazon may face a rival buyer, Bezos and his board saw an opportunity and pounced. I’d expect nothing less from Amazon.

With the acquisition, Amazon becomes the owner/leaseholder of 450 physical locations around the country. Today: the company does not intend to rebrand any of those stores or alter the management or employee structure. However: to say that this suddenly gives Amazon an unbeatable advantage in the grocery business is really getting ahead of ourselves.

With this purchase, Amazon enters into an already competitive and centralized grocery store industry. Whole Foods is certainly a dominant brand, but how does that compare to Kroger, which is the fifth largest retail chain (in any category) in the world (Whole Foods isn’t even in the top 50)? Consider that Kroger boasts 2,778 locations, nearly 4X that of Whole Foods, and the discussion starts to get even murkier. Whole Foods was already fighting a tough battle against grocers that were offering more organic produce and in-store perks like wine bars and gourmet foods. How will Amazon leverage its position in a tough space to overcome what were some already well-publicized obstacles?

 

Amazon’s Grocery Victory is Far From Certain

I mentioned in my post last week that the war for online eyeballs between Amazon and Walmart is still the one to watch. While the former is the undisputed market share champ for online sales, defeating Walmart on the brick-and-mortar grocery turf is going to be tough. Walmart has over 6,000 locations across the U.S., still making it the most formidable competitor for Amazon, or anyone else. Buying up a niche grocery retailer with hemorrhaging profits and a reputation for overpriced coconut water is hardly a guaranteed success. Bezos and his team probably do have a plan (as to what that is remains the subject of guesswork), but the success of that strategy has yet to be seen, especially against a notable retail giant that specializes in affordability, choice, and location.


John Mackey is Still a Big Question Mark

One of the reasons that it’s fun for the press to put a microphone in front of John Mackey is that he’s unpredictable. Thrilled, no doubt, to finally have some suitors and some positive press coming his way, Mackey is talking big talk, comparing his relationship with Amazon to a Tinder date, and doing a fair amount of boasting. At a recent press event, he was back to his old self, promising that Amazon and Whole Foods were set to make "a big difference in the food industry" (which is a bit of a given, isn’t it?) and are undergoing the regulatory process to make the “marriage” (his word) official.

Whether or not a guy like Mackey is the right fit for the kinds of innovation that Amazon may impose on his company is a massive, and enthralling, mystery. What we know from his checkered past as a CEO is that he does not take direction well. Will he now? The answer to that question will engage us all.

 

Let’s All Take a Deep Breath

Here’s some good advice for all brands and retailers alike: slow down and focus. This is undoubtedly a newsworthy moment, but I don’t personally think it’s quite as apple-cart upsetting as many of my colleagues in the tech and financial press do. As far as I’m concerned: retailers and brands are going to have to continue with a business-as-usual posture. The work of finding consumers online isn’t going to get any easier than it was before last week’s announcement. Your brand story isn’t probably going to change much, either.

So: let’s all continue to work together as the physical retail space evolves. Business paradigms are always shifting. What hasn’t, and won’t, change anytime soon: the combined importance of product discoverability, SEO, content, and brand consistency. Your world didn’t just change overnight and how you sell online won’t either.

 

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