Amazon Will Swallow Whole Foods Whole

AMAZON WILL SWALLOW WHOLE FOODS WHOLE For those who expected Whole Foods Market to shop itself to a fellow grocery store chain and not a powerful company experimenting with drone delivery, some surprising news this morning: Amazon plans to acquire the Austin-based company for $13.7 billion. “Whole Foods Market will continue to operate stores under the Whole Foods Market brand and source from trusted vendors and partners around the world,” the company reports. [Whole Foods; background from Texas Monthly] Photo of Whole Foods Market at West Alabama and Kirby: ilovebutter [license]

26 Comment

  • I hope their prices will come down then, Amazon is good about that. But it will be interesting how that affects other grocery stores. I miss that era when there were mom and pop hardware stores all over town, only to see them all close when Home Depot and Lowes came to town.

  • Amazon has been experimenting with grocery store tech that enables cost-effective delivery, eliminates the checkout experience, and perhaps that provides other functions. I would presume that these experiments have gone well if Amazon is going to dive with such committal into a new industry. Also, the geographic distribution of a bunch of Whole Foods Markets and 365 stores probably coincides with where Amazon’s highest-margin customer base lives and works…and this might give them the physical footprint that they would need to begin making drone delivery a worthwhile endeavor.
    For anyone that hasn’t been following Whole Foods’ slump and why this is a good path forward for them, here’s a link to a very timely Texas Monthly article profiling John Mackey, the CEO:

  • Smart move, whole foods had blood in the water and this gives amazon much more traction with the upper 20% of income earners that you need to stay alive now days. I’m sure soon enough you’ll be able to drive up to whole foods and have someone come out and deliver your online cart to your car. Krogers will bleed in competition with walmart fighting over the rest of ’em whom have been facing longstanding wage stagnation; no money to be found there.
    I’m just still a bit bewildered at the german discounters Aldi & Lidl trying to enter the US market. No matter how lean & mean they are there’s little money to be made in grocery stores so I’ll be surprised if they can pull it off.

  • I hope my Prime membership will allow me to afford to shop there.

  • We’ll eventually only have a few independent companies in the future. Everything else will be consolidated.

  • @MontroseResident

    I was born in ’91, so I never got to experience the little mom and pop stores (hardware store or otherwise). I wish I could have seen what it was like back then. :(

  • I’ve shopped at Whole Foods (the old Shepherd store was my jam) since 1986. I’m staunchly middle class and not upper end of ANY financial bracket, so I staunchly fight back on that idea that they’re wickedly more expensive than anyone else. I’ve never understood folks who actively hate on it. If it’s not your thing, shop somewhere else.

    Buy better, eat better, feel better is what works for me.

    It’s simple math — buy better quality food and actually consume it vs. shoving it in the fridge, letting it rot, throwing it away — and then turning around and dropping what you just spent on groceries for one meal + booze at a restaurant.

    That said, if the 365 stores are still on track as a cheaper alternative, then don’t mess with the Whole Foods quality to hit some phantom price point.

    I genuinely didn’t know they were hurting as a company because my store is ALWAYS busy. If this keeps them afloat and there was a real possibility they’d over-expanded too quickly and were about to make significant cuts, I get that desperate times = desperate measures, but please don’t break what works about the quality & consistency from city to city.

    It’s my go-to store whenever I travel because I know I can buy my groceries + eat a meal there.

    I kind of hope Amazon focuses on the distribution/ordering/stocking aspect of things. I’ve assumed the chain has avoided self checkouts because of all the coded/bulk products but I’d bet they’ll work on a way to introduce those.

  • @WebsterResident: do you not have any Ace Hardware affiliated stores in your area? Many of those are locally owned operations that affiliate with Ace to be more cost-efficient. I also know of Southland in the RO/Montrose area and C&D in the Heights. There’s a big difference shopping at those vs Home Depot and Lowes, not least of which there’s always someone available to help me find what i need.

  • Yay! I can’t wait for a drone to deliver my fresh, organic food to my house at the click of a button.

  • I love C & D Hardware on 11th between Studewood and Heights Blvd – in the Heights, of course. I would rather pay a few cents or dollars more there because as soon as I open the door and walk in someone is asking if they can help me! Try finding someone to help you at Home Depot or Lowe’s. Of course, C & D does not sell applicances and kitchen cabinets – but for smaller items it is my go-to place!

  • Great news! Wonder what H-E-B thinks.

  • I’ve been thinking about this deal for several hours and I don’t think it is a good business move for Amazon since they are buying into a low-margin business. “Fat” profits in the grocery world are around 4-5% if they are lucky. More typical is 1-2%. The vast majority of people still drive to the store, pick out their items, and take it home themselves. No drone is going to change this. Ubering your groceries will have a nice $10/trip charge (or more) and I don’t know that many people who can drop that cash on a regular basis – for groceries.
    Amazon will have to battle Walmart, Kroger, HEB, Target, Aldi, Lidl, and a host of other grocers just to eke out that 1-2% since I assume Amazon is going to try to underprice all of these comers. And, if they manage to defeat all of them, it won’t be long before competition springs up somewhere in America. Talk about a headache.
    They would have been smarter to plow this cash into their cloud-computing arm (Amazon Web Services), which has truly fat profits and growth. Meanwhile, I’m still visiting my local middle-of-the-road grocery store.

  • Maybe we’ll get Amazon Go via Whole Foods. If so, my wife will be thrilled.

  • @WBF, I don’t think the margins on groceries matter to them anyhow. It’s far more about locking you into their ecosystem. They can sell below or at cost and that one time you decide to buy a toy, a pair of shoes, some toiletries, or whatever along with groceries are when they’ll make money.
    We’ll see if americans even remember what an antitrust law is in 10yrs time.

  • Amazon is nearly profitless, and not very transparent (just try to find out how many Kindles or Echos they sell). Despite this, investors are delighted and give them a pass. Amazon will happily lose money on Whole Foods until they have a big market share. This is called ‘predatory pricing’ and is technically illegal, and I understand it is hard to prove. But, interestingly, Amazon is now building out brick and mortar bookstores. Since they are also building media empire, and Bezos controls the Washington Post, positive press will be abundant.

  • @WebsterResident…

    It was great. Often times it cost a little more, but that is because they did not order by the millions as the big box stores do. They did not have the variety the box stores have either, but they found alternatives, or sent you to their competitors, often times calling them for you so that you would not waste your time driving. Of course, the big box stores can’t afford that time, or service, but that was the difference.

  • So what you are saying is I can get Whole Foods without the horrible and insufferable people that shop there? GREAT!

  • @ WolfBrandChili: It’s a good business deal if it enables Bezos to keep telling the next chapter of the Amazon story to tech investors. When there’s no more growth, no more perceived opportunities for growth, and the leadership acknowledges it — that’s when share prices would tumble. (Recall what happened when Microsoft declared a dividend for the first time? It was a perfectly reasonable thing for them to do at the time and it was a disaster.)

  • Grocery delivery is the Afghanistan of retail. All the pundits who are so excited about Amazon’s purchase don’t realize how convoluted their delivery model really is. For example, most of the UPS trucks which deliver Houston’s Amazon Prime purchases are dispatched from UPS’s HQ in Sugar Land. That’s a long drive from most of the Houston area, but not a problem if your timeframe is 8 hours or more. How this will change with Amazon’s new distribution center at I-45 and the beltway is beyond my level of insight.

    What Amazon gets from Whole Foods is a supply chain and supply chain managers who know how to deal with perishables like bean sprouts that go bad in 2 days or less, and how to get them to stores while they’re still crisp. But adding the “last mile” of delivery adds a new level of complexity to the system, not the least of which is creating refrigerated & freezer compartments in all those trucks, and managing the packaging to keep the produce cold on your front porch all day . Easy in cool, cloudy Seattle, not so easy in the baking sun of places like Houston.

    At my local Kroger I’m already seeing drive-thru pickup of groceries ordered online. This seems much more feasible, but it leaves Amazon playing catch-up once again.

  • (1) Amazon’s version of “Ubering for groceries” is (except for the subscription, of course) free in other cities – they have had a deal with Sprouts in which drivers would pick up bags (pre-packed by Sprouts employees) from Sprouts locations and deliver them to Prime subscribers within two hours for free. This deal would give them a little more of a geographic footprint in that regard, not to mention WF stores tend to carry more items than Sprouts. (2) Amazon’s other same-day subscriber grocery delivery option – Amazon Prime Now – can’t possibly make a profit unless it sticks to delivering high-margin generic brand items, or so it would seem to me. The WF “365” generic brand now instantly gives Amazon their own generic brand where they previously had not been able to make inroads. (3) This must have been an easy decision in hindsight for no other reason than Amazon basically got WF for free: the next-day AMZN stock price bump was greater than the cost of the purchase. These are VERY interesting times, indeed!

  • @Cypress Flavored You may not realize that Amazon already has a fulfillment center in Humble and typically use their own fleet (contractors of course) to deliver a large percentage of their packages. They are not dependent on UPS for their deliveries and they certainly don’t all originate in Sugarland as UPS has distribution warehouses all over Houston.

  • @Cypress Flavored @DingusDufus There are also warehouses in Willowbrook (N Gessner @ BW8) and Fairbanks (W 43rd @ Hempstead Rd). Amazon is also using vacant commercial buildings like the old Walmart at FM1960 W & Cutten Rd.
    Plus, they are already bypassing UPS and USPS with their own fleet to deliver the same day (even Sunday) from these warehouses.
    From my view, Amazon isn’t playing catch up, they are leap frogging past grocery pickup. I wouldn’t be surprised if Amazon ends up buying services like instacart which recently greatly expanded it’s service area in Houston to deliver groceries within 1 hour.

  • I could see them combining this with amazon now. A courier picks up no perishables from the warehouse. They then stop by whole foods and pick up everything else which would be bagged and ready. The combination of the two could be very neat. I could see it replacing instacart.

  • @Cypress Flavored @DingusDufus @tempeh Amazon’s own delivery personnel are with an outfit called Amazon Logistics. They do not appear to be assigned regular routes, so their workers are not as familiar with the areas in which they deliver as UPS, FedEx and the USPS. As a result my personal experience in having packages delivered to my Galleria-area office has been poor. They often give up trying to find my office and just post that the package was undeliverable. Other times they’ve called me because they’re lost. Sometimes packages are delayed. All-in-all a delivery service that is ten times worse than the USPS is really going to have a hard time delivering perishables.

  • @Skeptic Amazon’s Logistics operations are more like food delivery than they are like USPS/UPS/FedEx. The Amazon drivers do not have regular routes; in fact, they do not have regular schedules. Of course, there is a baseline # of packages that can be counted on to require delivery each day; nonetheless, the driver pool competes with each other to obtain those shifts (as well as any other shifts which are created ad hoc based on demand).

  • Agreed, Amazon’s 2-hour delivery service is truly horrific. They are truly incompetent and aggressively unpleasant…this bodes ill for Whole Foods in that regard unless the deliveries are drone-delivered.