The Wall Street Journal over the weekend had a story entitled “The Amazonification of Whole Foods Is Finally Here – Bring On the Doritos.”
Which may be a little bit of an overstatement. But not much.
Here’s an excerpt:
“A new feature lurks in the backroom of a Whole Foods Market in suburban Philadelphia: the ShopBots, a group of robots that fetch Tide Pods and Pepsi for shoppers who aren’t fully satisfied by Whole Foods’s selection of organic kale and craft beer.
“In the beverage section, shoppers face a selection of prebiotic sodas free of GMOs and artificial colors. But if they really just want a Pepsi, they can pull out their phone, open the Amazon app and ask. The ShopBots will spring into action. The soda will be ready to pick up in minutes.
“In a separate trial in Chicago, the Pepsi is less hidden. There, Amazon has cleared the coffee shop and seating area of the city’s flagship Whole Foods, installing in its place a 3,800-square-foot grocery kiosk called Amazon Grocery filled with brands like Kraft Mac & Cheese and Chips Ahoy. The hope is for shoppers to buy their cabbage at the Whole Foods upstairs before basking in the purple glow of Spicy Sweet Chili Doritos by the lobby.
“The experiments are part of Amazon’s push to shake up its natural-foods crown jewel, eight years after it bought Whole Foods for $13.7 billion. And after years of failing to meaningfully increase its sliver of the grocery business, the retail giant is throwing its considerable weight into the effort.”
The story notes that while Amazon’s ownership has allowed Whole Foods to lower its prices (somewhat) and bring a higher level of logistics expertise to its business, it has not powered Amazon’s bricks-and-mortar retail ambitions to any real extent. It got out of the physical bookstore and fashion business, its Amazon Go and Amazon Fresh stores have had mixed appeal and success, and even counting Whole Foods, its “market share in the grocery industry hasn’t gone above 4%, according to market-research firm Numerator, which counts food and beverage sales but not alcohol and nonfood items. Whole Foods operates 547 stores worldwide.”
All of which is why Amazon is testing the boundaries that traditionally have surrounded the Whole Foods brand – not breaking them down, exactly, but seeing how porous they can be without damaging its brand.
According to the Journal, Amazon “hasn’t said it plans to expand the experiments in suburban Philadelphia and Chicago, but said that it would ‘continue to iterate’ on new concepts aimed at offering customers the chance to shop for both Whole Foods products and everyday essentials.
“Amazon officials have said that blurring the lines between its grocery brands can help the company capture more of Americans’ spending on food. Some employees and suppliers are wary.”
KC’s View:
I’m not surprised they are wary. Even if you concede that Whole Foods has lost a few miles off its organic-and-natural fastball since the Amazon acquisition – while I am sure management would dispute that assessment, there would appear to be a considerable number of customers who would make that argument – the fact remains that the words Whole Foods communicate something very specific about its brand and values. It is one of those rare instances in which the name of the company also is a largely accurate description of what it does – and therefore, something to be nurtured, treasured and not diluted.
CEO Andy Jassy clearly is focused on building the company’s grocery sales and profits. (Could he want to be successful at something Jeff Bezos struggled to make work? Better trained minds than mine perhaps could ponder this question.) Last week, as MarketWatch points out, he “said that even without counting Whole Foods … and Amazon Fresh, the company’s grocery business put up more than $100 billion of gross merchandising sales over the last 12 months. That would make Amazon a ‘top three’ grocery player in the U.S., he said,” adding that “the company planned to expand the ‘physical presence’ of Whole Foods in the years ahead. That chain, he said, was ‘growing at a faster clip than most grocery companies’.”
Not sure about you, but when I read those words I sense a little bit of defensiveness, as if he is protesting the idea that Amazon is not really taken seriously as a grocer.
The fact is, I think that the company’s various attempts to get physical grocery right have not succeeded, Whole Foods is largely viewed as a stagnant brand, if not a diminished one (no wonder he’s defensive!), and it remains to be seen what kind of future the Go and Fresh stores will have.
So Amazon has two choices. First, get out of the physical grocery retail business, in which Walmart always will have superior and more plentiful locations, and lease/license out its superior technology to other retailers – turning a money suck into a profit center. (This long has been my prediction. Jassy just has been a lot more stubborn than I expected.)
But he suggested last week that Amazon’s roll-out of same day fresh food deliveries – now in about 1,000 markets, and expected to more than double that footprint by the end of the year – is helping to change the “tradition of the weekly grocery stock-up … I think we’re a big part of that.” Jassy said he believes the new offering is “changing the trajectory and the size of our grocery business.”
“I think there’s a lot of potential there for the grocery side,” Jassy said. “It doesn’t mean that we won’t continue to experiment with other physical formats, but we’re onto something very significant with what we’re doing with perishables from our same-day facilities.”
(Jassy made these comments after Amazon unveiled its latest financial results. More on that below, in Eye-Openers.)
I think it makes sense to identify and take advantage of synergies between Amazon’s online and physical grocery operations – but the company should be vigilant about not diluting Whole Foods’ core value proposition.
There’s no reason in the world that a customer cannot buy organic produce, meat and seafood at Whole Foods, and while doing so place an online order for Diet Coke, Oreos, and Tide with Amazon that can be fulfilled in the same shopping trip. On the one hand, the proximity of fulfillment center for such items to a Whole Foods store could be seen as an advantage, but it also could be seen – especially by longtime Whole Foods shoppers with deep institutional loyalty to the brand – as undermining the reason for its existence. Shoppers won’t care about share of market or margin dollars or profit realities – they’ll just want their store to be their store.
I just think Amazon and Whole Foods have to be really, really careful here. They have to remember the singular lesson from “Jurassic Park” – just because you can do something doesn’t mean you should do something. (In all fairness, almost nobody in the “Jurassic Park” and “Jurassic World” movies ever seemed to learn that lesson, which is why people kept being eaten.)
This is not just a Amazon-Whole Foods issue. Every retailer – every business – has to consider every day whether the decisions it is making amplify, strengthen and grow the brand. Because if not, different decisions need to be made. Maybe by different people.
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