On Friday, Amazon announced that it was buying Whole Foods Market for $13.7 billion. From where I’m sitting, as an ex-Whole Foods employee (who unfortunately holds no stock), food journalist, industry observer, and an eater dedicated to transparent communication around food, this merger represents a major opportunity for the beleaguered brand. But, at the same time, expectations are high, and consumers will be concerned about change.
I worked for Whole Foods’ busiest store in the Time Warner Building in Manhattan for two years on my way to covering the food industry as a journalist. I thought it would be a good way to quickly see all sides of the retail equation, and it was. A few years later, I briefly worked for a vendor of Whole Foods. And now I’m just a somewhat frustrated customer, with a wistful view of what Whole Foods used to be. In the last four years, Whole Foods has whittled down programs that were essential to its brand identity, centralized buying operations, and eliminated whole categories of employees or “team members” in the local parlance, which made up a good portion of the mid-range of their workforce.
Whole Foods and Amazon have an equal appreciation for customer service that makes them a compatible match. The grocer has made attempts in the last five years to improve its digital presence, accepting digital coupons, opening online ordering for catering, and partnering with Instacart for direct-to-consumer deliveries, to extremely mixed results. Meanwhile, Amazon has attempted to enter the grocery space, but various offerings like Amazon Fresh and Prime Pantry haven’t been a hit with customers. Both have much to gain.
Here is what I would like to see from this deal, but also how to prevent Whole Foods from becoming unrecognizable to consumers.
1. Integrate the digital and physical shopping experience
The Instacart experience was enough when it launched in 2014, but now the cracks are starting to show. Shoppers are still beholden to stock levels on the day, at the moment that they place their order, and there is no recourse for missing items. Integrating the physical and digital experience of shopping could mean smart inventory that could send out of stock items to shoppers’ homes or quickly transfer items from store to store without inventory missing a beat. The possibilities are exciting. Instacart has fours years left of a five-year exclusive delivery contract with the retailer and reports suggest that the contract will stand for that period.
2. Maintain and strengthen upward mobility available to team members
Whole Foods has been on Fortune’s 100 Best Companies to Work for List for 17 years. It offers wage mobility and benefits to employees in an industry where that is rare. Employees get access to discounted stock and periodic briefings on how the company is doing as a whole. Recent cuts in mid-level store staff — the middle of the bridge from the first two tiers of positions to the bonused and salaried store leadership level — have led to a dearth of talent at the top and fewer opportunities for advancement from the bottom. Chances are with a more tech-enabled back-end, and more integration between the back-end and the front-end — even with the introduction of rumored self-checkout — customer service positions are going to grow and vary, and tech-fluency and institutional knowledge will be at more of a premium. This could mean more favorable career tracks and more translatable skills for the workforce.
Many onlookers are speculating that automation will lead to fewer employees in the store as well, but with Whole Foods’ emphasis on service and product knowledge, using technology to increase the speed of purchase processing — facilitating more transactions per hour and more sales per store — looks more likely than cutting the workforce in the near term. That said, Amazon is a controversial employer accused of creating an adversarial workplace culture, so Whole Foods’ paid team-building activities and extensive company culture training may not be appreciated by its new owner.
3. Accommodate suppliers of all sizes
The consolidation of Whole Foods buying hasn’t hit its height yet, but the pairing down of SKUs (products) has already started. Some smaller distributors have been nixed, and soon shelves might look very different as smaller brands are kicked out. Whole Foods is an expensive company to deal with on the vendor side, in part due to a lack of technological innovation that begets inefficiency. The ordering process is not as streamlined as it is at other grocers and this has led Whole Foods to choose between large vendors and small vendors. The store’s current data unification strategy will mean a more streamlined process, but fewer vendors overall.
Amazon is also notoriously difficult and expensive for small vendors to deal with. If Amazon brings more efficiency in ordering and inventory management to Whole Foods, store-level or local buying programs may be able to beef up again and bring in the small vendors that give individual Whole Foods stores their own flavor and feel. They would be wise to find their way in this direction too as big box stores bring in more natural and organic products. Exclusive products and small local finds may eventually be the main differentiators between the assortments of these major retailers, and Whole Foods should be hesitant to abandon them in favor of a more nationally-consistent product assortment.
4. Make healthy food more affordable
Of course, the grocery wars will always be waged on price. Online startup Thrive Market likely exists to compete on price with Whole Foods on a similar if not narrower assortment of specialty products. Work a shift behind the cash register at a Whole Foods Market — and I’ve worked hundreds — and you’ll see that supplemental nutrition assistance dollars (SNAP often referred to as food stamps) are often spent on specialty items that cannot be found at other stores.
The lowering of these prices due to the increase in scale would be a welcome result, and Amazon Prime’s discounted SNAP memberships may offer convenience to low-income shoppers as well. However, the US government issued a patent to Amazon on May 30 for a technology that would allow the retailer to block comparison shopping via the store’s wifi. Since cellular data is unaffected, most online shoppers would likely not be deterred from comparing prices, so installing such tech would really serve as a rock in the shoe of customers that still show up to the store in person. Though it is evidently averse to comparison shopping, a Bloomberg report says that Amazon intends to dispel the common nickname of “Whole Paycheck” by eliminating the most expensive SKUs — which won’t help low-income shoppers because they weren’t buying them anyway — and expanding private label options, which could help low-income shoppers.
The opportunity
Investment from a tech company in traditional grocery is heartening for the industries we cover. It demonstrates that low-margin industries are worthy of high-tech upgrades and solutions. It endorses that product knowledge and true understanding of both food and how people interact with it every day are essential to succeeding in the space. It raises the bar for supply chain technology and hopefully contributes to a thriving tech ecosystem of food logistics, freshness monitoring, last mile innovations, inventory management and many other technologies. At AgFunder we’re watching this story with a constant finger on the refresh button. I’m hopeful that scale and technology will allow Whole Foods to be more itself than ever. I will admit that I have no reason to believe that’s the intention, but at its height, Whole Foods elevated the grocery shopping experience. This is a chance for them to do it again, with technology and innovation as the driving force.
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