Predictions are easy. Waiting on outcomes is harder. But that’s what we’re facing as the concrete hardens on the buyout of Whole Foods by Amazon.
If you poke around the magazine this month, you’ll see we’ve taken plenty of time to analyze the deal from a news sense, looking at the implications in store, online, for suppliers and consumers.
But what are the dream outcomes? The nightmares? I’ve broken it out through a few different lenses.
Both are highly wired toward impressive customer service. Whole Foods has a long practice of doing it in-store, encouraging expertise and initiative within team members to the point where the company has long sourced products, recipes, and assortments from the bottom up. At times, this has been problematic: accusations of fiefdoms and inefficiencies due to decentralization have, at times, caused friction and hurt the bottom line. Also, applying high service levels as part of a premium pricing model has pushed the store out of some income brackets; that was one of the areas that opened the door for competing retailers to steal market share.
Amazon, on the other hand, delivers. Its consumer experience is one of user-based curation and high-quality fulfillment. Its pricing efficiency is such that, at times, consumers are told to keep an item they might have otherwise returned simply because it’s cheaper for the company. In an online world, it’s the largest repository of information about the products it sells, and it also pulls data from those sales to create suggestions for both consumers and for suppliers. It allows frictionless digital interaction, cutting much of the human element out of the equation. But there are criticisms of the Amazon system, which has been known to treat its employees’ humanity as a pesky coefficient that must be reduced.
So will this create a culture clash? Hard to tell. Trader Joe’s, for example, has been both highly efficient and highly consumer-centric, but it’s also reliably tough on suppliers. Very few brands are built in Trader Joe’s, while thousands have come through Amazon and Whole Foods.
Best Case Result: Amazon’s predictive algorithms create pricing models for Whole Foods that allow it to defray the “cost” of its friendly approach to the consumer, while also broadening shopper experience to make it less expensive, increasing visit frequency. Whole Foods’ respect for employees permeates Amazon warehouses.
Worst Case Result: Amazon’s win-at-all-costs culture turns Whole Foods into a node instead of a destination, and decimates the service and assortment that made it a special trip.
From a competition standpoint, the thought is that Whole Foods will benefit from Amazon’s advanced analytics and fulfillment capabilities. In other words, people think that Amazon is going to help Whole Foods deliver groceries to your house, rather than having you go to the store. This is expected to become more important as the years go on and impulse buying takes place on your phone or in your home, rather than where you are.
The thought is that Whole Foods’ products will be the “first page” of any attempt to fill up a shopping list, and that Amazon will be better at getting that list to your house than any other service, as it has proven for many other product types.
It’s a good bet, except for the ongoing issue that dogs all online grocery services, which is that the store perimeters that elevates Whole Foods physical locations contain the same products that people have been reluctant to move into their online shopping carts: produce, prepared foods, meat and seafood, dairy and the salad bar and deli. While plenty of juice companies will tell you that they are getting better at shipping cold products to consumers, it’s still expensive and inefficient for both consumer and supplier.
Still, Whole Foods and Amazon aren’t the only companies that can create a pleasant shopping experience, and they aren’t the only ones that use analytics, either. Fairway, Trader Joe’s, Wegman’s, Central Market and more are delightful places to shop from a “user experience” standpoint, while there are an increasing number of places to source groceries online, and Kroger still has technological advantages of its own.
Best Case: Consumers start to trust the idea that their Whole Foods grocer is going to send them nice blueberries and trout, even if they’re delivered by driver or drone, while Whole Foods brick-and-mortar stores are able to evolve even more as gathering places, “grocerants,” and the suburban equivalent of the food hall.
Worst Case: The last mile model doesn’t translate. Kroger and regional chains along the lines of Fairway team up to curate a cheaper delivery model – one with better coupons as well. And a slowdown in WF construction means that the stores remain highly concentrated in just a few states.
Finally, from a supplier standpoint, things are going to get interesting. So far, most of the entrepreneurial companies we’ve talked with are eager to dual-incubate on Amazon and in Whole Foods, especially given how their unique products tend to pop up more quickly when they’re searched online. But what if Whole Foods stops becoming the discovery destination that launches all of those searches in the first place? An edgeless Whole Foods is nothing but a real estate play for Amazon. That’s a worst case that companies and suppliers can’t afford.