Amazon Acquires Whole Foods – World Forgets to Ask – Why was it for Sale?
Amazon has announced the acquisition of biodynamic Kale store Whole Foods for US$13.5B. This has, of course, ramped up even further the excitement for Amazon online food delivery and the opportunities in the grocery market. This play is real. Whole Foods gets the best distribution and supply chain network in the world without peer.
This is the good news. The bad news is that Whole Foods was up for sale. Why? Same Store Sales (the performance benchmark for retail) fell 2.4% in the first quarter of this year. Store numbers declined for the first time ever. Whole Foods is not on its own. Retail is under pressure globally, but particularly at the commoditised and fashion sectors in the US. Brands are disappearing, and as Sears is finding out, sentiment doesn’t keep the bankruptcy issues away.
Customer feedback highlighted the ridiculous function, and overpriced nature of some products, not just Kale based ones. The demographic it targets is relatively narrow, the analysis of Cracker Barrel vs Whole Foods in the 2016 US presidential election is incredibly telling. Look at the distribution of stores in the Los Angeles Metropolitan Area. Santa Monica and Orange County are well covered. San Bernardino and Riverside barely have any. No guesses why.
The challenge for Amazon and Whole Foods is to fix the reason why Whole Foods was effectively for sale and under pressure anyway. Trader Joe’s was hurting it, ironically owned by the best bricks and mortar supply chain in the world – Aldi, as well as premium prices for biodynamic Kale not always matching the real world. It can improve the supply chain and delivery mechanisms, but it has to be delivering what the people want at a price they can afford. That is what Amazon is the master at.
The market clearly backs Amazon, and in our view, the brands fit well, and it should, in theory, be a successful deal. It may take the brand global. Management will change at Whole Foods, as will aspects of the supply chain, market proposition and stock management. Most importantly if it works, it won’t be the last of its type. The likes of hardware are arguably next on the line for disruption, with not many sectors left that are dominated by traditional retail.
If you require further information, please contact Phil Hassey, CEO of capioIT. capioIT is an advisory firm focused on helping organisations to understand emerging technology as the world becomes Digital. Phil may be contacted easily in the digital and real world.