Amazon + Whole Foods = Big News. But Why?

In one corner, the democratic purveyor of low-cost options. In the other, the aristocratic purveyor of expensive specialty items. It seems more like a class battle than a merger
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Posted July 6, 2017

It has been interesting to see retail analysts twist themselves in knots explaining the brilliance of the Amazon-Whole Foods deal.

“This forever changes the paradigm of food shopping!”

Really? How?

It’s not that it might not be brilliant. The moment is long past when we should doubt almost anything Jeff Bezos gets into his mind. But so far, I’ve yet to see anybody explain why this is such a terrific opportunity for Amazon, or for a nation of grocery consumers. (Clearly, it’s a $13 billion opportunity for Whole Foods.)

Yes, it is a huge game-changer on the business pages. And it has the entire industry scrambling. Kroger executives have not exactly denied the rumors that they’re considering a competing bid for Whole Foods.

Maybe the big implication is that it drives the nation’s major supermarket chains even closer to the brink. Is that good for anyone?

And exactly how the deal changes the way people will buy their groceries is not clear to me yet. Amazon has sniffed at physical retailing as an outmoded form of exchanging goods and services (not including its “pick-up/return” locations and its bookstore concepts).

Besides, if Amazon were going to officially enter the world of bricks and mortar, why groceries? It’s a low-margin game with high overhead. The overhead, of course, is mostly from the physical buildings, something e-commerce avoids. But Amazon and others have failed to establish the consumer willingness to buy milk and eggs the way they buy books and electronics. It feels almost counterintuitive not to want to feel that tomato or make sure you grab that carton of milk, hidden in the back, the one with the longest freshness date.

And if Amazon were going to enter the world of brick-and-mortar groceries, why Whole Foods? They haven’t exactly flooded the map with retail outlets. There are about 450 Whole Foods Market store locations, mostly selected for their proximity to upscale shoppers with platinum plastic. By comparison, Kroger has 2500 locations; Walmart has 3500. Maybe those would have been better gets for Amazon.

I’ve heard that this is Amazon’s opportunity to combine its low-margin commodities with Whole Foods’ higher-margin specialty foods. But the Whole Foods shopper doesn’t go there for Bounty and Kleenex. She’s looking for 100-percent organic, recycled, hypoallergenic.

And she likes going there. Whole Foods is exactly the model of social interaction that e-commerce lacks. She likes chatting up the guy across the fresh fish counter who’s picking out her Chilean sea bass filets. She likes seeing what’s fresh in the deli counter and bakery. She likes ladling her own lobster bisque into a container. She likes having her cup of coffee and a croissant at one of the tables. And she likes the high-quality standards. She’s willing to pay for those.

So either Whole Foods is going to have to lower its standards (and its prices), or Amazon is going to have to raise its. Or maybe the Whole Foods model is going to be modified beyond recognition.

Or maybe none of the above. Because nobody knows what Bezos has in mind. He chases big ideas and doesn’t seem to worry about the balance sheet. He has the leverage to do whatever he wants. He’ll certainly have immediate access to high-end consumers for all the other Amazon products and services, plus all that demographic data.

I’m sure there must be real potential in this merger between two such cultural phenomena.

I’m just saying, nobody’s explained yet what that is. Or why it changes the game. Or even if it will be a good thing at all.

As a journalist, writer, editor and commentator, Steve Kaufman has been watching the store design industry for 20-plus years. He has seen the business cycle through retailtainment, minimalism, category killers, big boxes, pop-ups, custom stores, global roll-outs, international sourcing, interactive kiosks, the emergence of China, the various definitions of “branding” and Amazon.com. He has reported on the rise of brand concept shops, the demise of brand concept shops and the resurgence of brand concept shops. He has been an eyewitness to the reality that nothing stays the same, except the retailer-shopper relationship.