The largelthiest storket in the world! Why does Amazon want to buy Whole Foods?

The largelthiest storket in the world**! Why does Amazon want to buy Whole Foods?

There has been a ton of buzz about the announcement that Amazon wants to buy Whole Food Market…I’ve flipped several stories into the free

 ILMK magazine at Flipboard

and here is a

Google news search

for even more.

Most stories seem to want to present this as Amazon disrupting the grocery business…as they think it did for bookstores and then pretty much for shopping malls after that. I don’t really think that’s it…or at least, not all of it.

First, Amazon is already in the grocery business, especially with

AmazonFresh (at AmazonSmile: benefit a non-profit of your choice by shopping*)

Second, Whole Foods Market (WFM) is not really a typical grocery store.

If WFM had disappeared, that wouldn’t have significantly changed the grocery store business, at least as most people imagine it. WFM only has about 500 stores: Albertson’s has close to 2,500.

Now, WFM is not super strong. Back in September, analysts were lowering their estimates, according to this

CNBC article by Sarah Whitten

Whole Foods has just started to experiment with lower price stores…after all, many people jokingly refer to it as “Whole Paycheck”.

So, if the thought is that you wanted to disrupt groceries, you’d buy Albertson’s, right?

This is about other things.

Let’s look at some general reasons why one business buys another business, and how those might apply.

It’s a Profit Center

WFM has been making a profit, but based on my quick research, it’s been much lower than Amazon’s lately…and has been stagnant recently:

A profit is still a profit (and $5 billion a year isn’t bad), but it doesn’t seem like that would be worth the risk.

They Have Assets You Want

I think this is the primary thing for Amazon…and it’s not about butternut squash. 😉 I think they want the physical buildings. Amazon could rework the back areas to make them much more efficient, which might include the use of their Kiva robots. That would then give them area they could use to facilitate the delivery of other, non-grocery items. There may be some limitations to what you can store near food, but WFM already sells lots of non-food items (including toys at the holidays). It’s tough to buy and establish retail spaces, even if there are a lot of vacancies now. Amazon can suddenly have over 400 mini-fulfillment centers…and ones that are already set up for delivery reception.

I don’t think they’ll change WFM that much initially, as far as customers see. When Amazon takes over a business, they don’t seem to make a lot of visible changes. WFM needs some help, but the basic idea of it is likely to stay the same.

Might they add in things, like the new Amazon Dash Wand? Sure. I think it’s the backrooms and locations they want more, though. That may be informed in part by my experience as a brick-and-mortar retail manager, even though it was now quite some time ago.

You Want Their Reputation/Brand

Yep, that’s probably part of it. Whole Foods was #44 in 2016’s Harris poll of companies’ Reputation Quotient® (RQ®) Summary Report. Amazon was #1, but that wasn’t for groceries specifically. Something that I think is a misconception is that people see Amazon as a budget seller and WFM as a luxury one. However, when you look at AmazonFresh, that’s not competing with Walmart…the prices aren’t particularly low, and the products include fresh produce and brand names. People also pay just to be part of the service.

People who use AmazonFresh probably are more likely to shop at WFM, but I’m just guessing on that.

You Want to Put Them Out of Business

That’s not something that officially happens, I believe, but it sure has happened where a company has bought a competitor and then shuts the competitor down a year or two later. WFM isn’t really a competitor for AmazonFresh, even with my presumed overlap…they are just two very different things. I doubt this is a factor.

You Don’t Want Someone Else to Get Them

It would have been hard for most competitors of Amazon to buy WFM…I don’t think this was it.

It Looks Like Fun

I think people underestimate this. In some cases, it might be a childhood dream (not in this case), but it could just be the novelty or the challenge. While I don’t think it’s done foolishly, I do think fun motivates Jeff Bezos. Blue Origin (Bezos’ space company) and Washington Post were partly done for fun, I believe.

What does all this mean we’ll see?

Let me say, I do expect the sale to happen. 🙂 One of my regular readers reasonably challenged me saying that Amazon “may” buy WFM…I just don’t like to say something is inevitable, but I think it’s a very high probability.

I don’t think WFM shoppers will see much of a difference right away. I even think their current deal with Instacart won’t end immediately.

It’s entirely possible that some WFM products will show up quickly after the sale is final in AmazonFresh.

Unless they choose to quit, my guess is that you’ll continue to see the same checkers, baggers, and managers.

Much will be happening in the back, though.

Slowly, changes will come to WFM. Could we see the “checkoutless” store that Amazon has been piloting? Yes, in some places within a few years. By this holiday season, you may start seeing some Amazon hardware in WFMs.

Oh, and you might have drone delivery if it gets approved. 🙂 You could certainly have the Prime Now one hour delivery.

Overall, I think this is a good thing for consumers. I think the sale will happen. I think some grocery startups will get crushed, but that it won’t mean the end of big grocery store chains like Albertson’s.

That’s just what I think…what do you think? Feel free to let me and my readers know by commenting on this post.

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* I am linking to the same thing at the regular Amazon site, and at AmazonSmile. When you shop at AmazonSmile, half a percent of your purchase price on eligible items goes to a non-profit you choose. It will feel just like shopping at Amazon: you’ll be using your same account. The one thing for you that is different is that you pick a non-profit the first time you go (which you can change whenever you want)…and the good feeling you’ll get.  Shop ’til you help!  

** A reader suggested in a direct message that I might want to correct my headline. 🙂 I was going for a joke, combining the slogans of the two stores to show that it was a bit ridiculous. While they both use other things, Whole Foods has called itself, “America’s Healthiest Grocery Store” (and got rebuffed when they wanted to change that to “World’s Healthiest”, basically as being unprovable). Amazon was “The World’s Largest Bookstore”. I was combining “Healthiest” and “Largest” to make “Largelthiest” (which I thought might seem paradoxical to some people) and mashing “Store” and “Market”, although therein might have been part of what made it more obscure, because WFM is called a “market” but they used “Grocery Store”. I wanted to combine Amazon’s “Store” and “Supermarket”. My Significant Other would say that’s a classic geek joke (which I make and my SO doesn’t)…it takes you five minutes to explain it. 😉

To illustrate my geek jokes…we have two dogs: the first one we got is named “Elf”. We were in line at the adoption agency (ARF, the baseball player Tony La Russa’s Animal Rescue Foundation , and someone called out, “Elf!” Turned out we were number 11, and the person explained they were learning German, and “elf” is “eleven” in German. Our now adult kid is fluent in German, and I thought that would be a great dog name if we found a dog who fit it (we did).

When we went back a few months later to get a second dog (we always think having two dogs is easier…sometimes they want to do doggy things you just don’t want to do, like roll in the mud), a person their knew the story of how we named the first dog (you bring the first one to meet the second) was worried and said, “You can’t do that this time.” You see, we were number 6, which is “sechs”  (pronounced “sex”) in German. Yes, it would be a bit odd yelling that in the backyard to call your dog! So, I suggested we name that dog “Patty”.

You see, there was a TV show in the late 1960s called “The Prisoner”, which was a touchstone for geeks like me (I own the DVD set). It was about a spy who quits and ends up on this island which seems like a perfect little resort town…but isn’t. People were intrigued by it like they would be with Lost decades later…and the ending is, shall we say, unique. The main character was called “Number 6”, and was played by…Patrick McGoohan. So our second dog is named “Patty” after Patrick McGoohan.

When we explain that in the dog park, most people are bemused…but there is that rare individual who truly loves it! In fact, one person who knew the show said, “You could have gone the easy way and named the dog ‘Rover'”.

I’d explain that, but it would be another rambling geek joke… 😉

Thanks to my reader for the concern! I always appreciate proofreading feedback!

 

Tags: Whole Foods