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:

Line graph showing increasing gross profit growth for Amazon, flat for WFM

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!

 

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

  1. Roger Knights Says:

    Amazon doesn’t probably need 500 mini-distribution centers. I suspect it will convert just 50 stores to that function within a year and then see how it goes. Maybe another 50 would be converted in the following year. 100 is likely enough. Such coverted locations wouldn’t continue to sell groceries—the space would be needed for warehousing.

    Having a site in nearly every state would give Amazon more political heft in statenouses to block anti-Amazon laws.

    Owning WaPo gives it an influential platform to argue against would-be anti-trusters in DC out to block this merger. (One such was opining in the Atlantic today.) Maybe Bezos’ WaPo acquisition was done with this purpose partly in mind.

    • Bufo Calvin Says:

      Thanks for writing, Roger!

      We’ve got two very different visions on Amazon using WFMs as staging places. I don’t think they would close a WFM to turn it into a fulfillment center, unless it was for groceries. The front of a grocery store has a lot of specialization to it which would be wasted on non-grocery items…think of the freezers, the refrigerators, the hot food areas, the “spritzers” for the produce, etc. I know of a Round Table which has been vacant for years: I assume part of that is how specialized the space is.

      Amazon has made some incredible strides in storage and fulfillment. My guess is that they could save 1/3rd of the space in the back just through efficiencies. That gives them a third for Prime Now items…and while the Whole Foods’ parking lots legendarily suck for customers (over five million views for this video, It’s Getting Real in the Whole Foods Parking Lot https://www.bing.com/videos/search?q=it%27s+getting+real+in+the+whole+foods+parking&view=detail&mid=9BCE74805CCE59C54F169BCE74805CCE59C54F16&FORM=VIRE), their loading docks seem to be generally well positioned.

      500 stores with 1/3rd of the backroom for PrimeNow (including drone, eventually) might be exactly what they want.

      The Anti-Amazon laws are a non-issue now, since Amazon is already collecting sales tax in every state that has one.

      One concern I have is that Bezos and the President have been publicly at odds (although Bezos does still go to DC to discuss issues), so the Federal regulators may be predisposed not to support Amazon/WFM.

  2. Tom Semple Says:

    I think it is about capturing an affluent customer base and making each WFM store more profitable by home/office delivery via Amazon Fresh and eliminating checkout lines with Amazon Go technology. And drone delivery, eventually. I don’t see these becoming pickup locations for non-food items.
    Convenience is having the stuff you want delivered to where you are. WFM parking lots and checkout lines are often congested and just getting in and out can take 20 minutes.That is on top of time to get to the location and back.Having WFM function as distribution centers as well as being a more efficient customer destination will let them scale up.

    • Bufo Calvin Says:

      Thanks for writing, Tom!

      I do think you are right about the affluent base, although I think that’s where AmazonFresh is already aimed…definitely could expand that.

      I think I would bet on Whole Foods getting Amazon lockers, which in that case would make them “pickup locations”…of course, the lockers might be made out of sustainably harvested wood. 😉 I do picture them carrying some items you buy which are not food items (they do that already), but I don’t see you ordering something non-food online and then getting in line there to pay for it (not counting a line which may happen at the lockers, but that’s rare).

      I’m thinking Amazon may figure something out to make the parking better. 🙂 It’s not really that the parking lots are poorly designed, it’s more about traffic control…and Amazon is great at that in the warehouses! It might mean repainting some lines, but I think it’s more about flow.

  3. Edward Boyhan Says:

    I may have mentioned this in one of my other posts about this, but I think a big reason may not be about the stores at all, but about the distribution network (supply chain) getting groceries to the store. They could use this supply chain to improve their grocery selection (which I think I have mentioned is not great when compared to mainline supermarkets like Krogers, Safeway, Publix, etc.).

    Another more store focused use might be for their new Amazon Fresh Pickup service which they are piloting at two locations in the Seattle area. There are two flavors of this: in the one currently on offer, it’s merely a pickup location for orders placed online. The storefront is just a warehouse — no shopping allowed.

    The other approach is similar save that the pickup location is both a warehouse and a store. Customers might browse the storefront, and place orders that would be put together in the back warehouse part. It would also support the pickup of orders placed online. Amazon’s current thinking is that the storefront would not be like a supermarket. There wouldn’t be a lot of quantity on the shelves rather the items would be displays — somewhat like their newish bookstores.

    This concept is not unique to Amazon. TigerDirect is a major catalog seller of computer and electronic stuff. They have a few stores in Florida, and (I think) in Illinois that they picked up from CompUSA when they when out of business. These stores primarily sell warehouse overstock. However, their main warehouse for the catalog is in Commerce Georgia. This is a huge huge building. It has a small store in the front which again is selling warehouse overstock. You can, however go to a counter at the back of the store, and order anything in their catalog, they will then dispatch the order into the warehouse part, and you pick it up at the counter a few minutes later.

    • Bufo Calvin Says:

      Thanks for writing, Edward!

      I always want to pick my own produce, which would sort of work with what you are describing.

      I could also see that you pick what you want…and then Amazon delivers it. That might help with the parking, and might feel like a premium service.

      • Edward Boyhan Says:

        At the Amazon Fresh Pickup in Ballard, WA (which is the pickup only concept), there is no parking lot per se — rather it’s more like rental car return lanes (or slots) where you tell an attendant what you are picking up, and someone delivers it to your vehicle.

        Home delivery of groceries is not all that new. In the 25 years that I lived in Manhattan, I always had my groceries delivered (as did most other shoppers — people just don’t have personal cars in Manhattan — the monthly charge to park a car there is about half of one month’s rent for a one bedroom apartment :grin).

        Supermarkets are small. You checkout as normal, a delivery charge is added to the total, and people on bikes deliver your stuff in an hour or two — no one wants to schlep even a couple of blocks lugging 5 or 6 bags. I did have some neighbors in my coop that did keep a car on a pier on the Hudson River. Once a month they would drive to NJ where ginormous supermarkets resided, stock up on everything, and drive back to the coop where the doorman would help to unload and store it while they took the car back to the pier (:sheesh).

      • Bufo Calvin Says:

        Thanks for writing, Edward!

        Your description of your neighbors shopping reminds me of I Am Legend by Richard Matheson. 😉

        Decades ago, when I was managing a store in the Embarcadero in San Francisco (a downtown high rise which includes store in the bottom), they sold parking places (they were “condo parking places”) in the building…for $10,000. That was worth it for some businesses…parking for a day was about $30…about $10,000 a year. Of course, and this is true, you had to repaint the lines yourself if they got worn.

  4. Man in the Middle Says:

    Amazon already has a relationship with Sprouts, a similar grocery chain to Whole Foods, though smaller. Presumably Amazon will consider moving that relationship to Whole Foods now. Personally, I prefer Sprouts, as it is walking distance from my home, and not outrageously expensive for good organic food. But it’s unlikely to affect me soon, as we don’t yet see a need to have our groceries ordered on-line and delivered to our door at extra cost.

    • Bufo Calvin Says:

      Thanks for writing, Man!

      We do use Sprouts, although not very often. They are less expensive for us than WFM, particularly on vitamins. The produce for us is hit and miss…however, they have an frozen egg white patty thing, and they carried Siggi’s, an Icelandic yogurt first…but then they stopped carrying the plain version, which is what my SO uses. I’ve just never liked shopping much at Sprouts, myself…they don’t seem to be well laid out…a lot of walking and reaching.

      We’re with you on the delivery so far, though. If we could get a few things which drive us to WFM, we might do it…wouldn’t be easy to get to $30 just for those items, I think.

  5. Congressional request for review of Amazon/Whole Foods deal | I Love My Kindle Says:

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

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