When news broke last June that Amazon was gobbling up Whole Foods for $13.7 billion, it prompted weeks of speculation as retail watchers tried to determine what the acquisition would mean for the companies’ competitors.
At the time, Sourcing Journal rounded up a few of the most popular theories for a closer look. While not all of the predictions were spot on, there’s no doubt that the deal has had a lasting effect on the retail landscape.
“I think [the acquisition] raises the bar for what we expect out of retail. Shoppers benchmark the experience at other retailers against Amazon and this just elevates that even more,” said Meaghan Werle, senior analyst at Kantar Consulting, as she reflected on the past year.
Werle said the reaction from the industry came immediately as competitors rushed to gain new capabilities either through partnerships or acquisitions like Albertsons’ purchase of the Plated meal kit company and Target onboarding the Shipt same-day delivery business.
As time wore on, more ripple effects became clear. One year later, here’s a look at what the pundits got right, what they got wrong and what they missed entirely.
One commonly held theory seemed like an easy bet: prices would come down. And just two months after the announcement was made, Amazon took steps to make shopping at Whole Foods more democratic by lowering prices on select organic produce and pantry staples.
“We’ve gotten to this place where organic is no longer a premium. Whole Foods was the true pioneer but a lot of the other supermarkets caught up and offered organic at lower prices,” Werle said. “The biggest priority for Amazon when the acquisition went through was focusing on how do we go about eliminating the ‘Whole Paycheck’ image that Whole Foods has among a lot of shoppers.”
Though price cuts did give shoppers some relief, it didn’t exactly produce the “earthquake” across the grocery sector one analyst had anticipated. Of course Amazon entering physical grocery stores didn’t help an industry that was already battling the invasion of German discounters like Aldi, which offer private-label goods at rock-bottom prices.
The Amazon/Whole Foods marriage led Forbes to envision a world where shopping across categories would be easy—simply fill up your cart online and pop by the store to pick everything up. No more running from the grocery store to the drug store to the big-boxer.
And while Amazon lockers in Whole Foods have helped that become a reality, the real value of the online/offline connection is still to come, according to Werle.
“What Amazon has the opportunity to do is to tie together that online and offline shopping behavior just with the data they’ll get from Prime members shopping both in the stores and online once that’s integrated into their POS system. That opens doors for them to understand their shoppers’ lifestyles more holistically and serve them in ways other retailers can’t as quickly,” she said. “They could fill in the gaps that they may have been missing by being an online only loyalty program.”
The vision of a one-stop shop is coming though, and it’s grocery that’s leading the way.
Retailers have been putting an increasing amount of focus on food, and Werle said that’s likely to continue. “[Grocery] makes the retailer a more regular part of shoppers’ routines. We shop for groceries on a weekly basis so if they can capture those shoppers and get that recurring sale, it’s pretty powerful for the retailer,” she said.
That’s why, she added, a grocery acquisition was so important for Amazon. Now with Amazon and Whole Foods combined—and their services becoming intertwined— shoppers will be able to fulfill most of their needs all in one ecosystem.
When the deal was announced, some immediately recognized that Whole Foods was likely to become a ready-made distribution network for Amazon.
And while it did give them more than 400 more physical touch points with the consumer, it provided something else that might prove to be more valuable as all grocers race to crack the e-commerce food code.
“For Amazon, they couldn’t do it without having acquired someone like a Whole Foods because they’ve been trying to drive Amazon Fresh since they started in 2007,” Werle said. “It gave them the credibility in that space that they needed to accelerate online grocery.”
Monopoly of a demographic
With Amazon plus Whole Foods, many wondered if the online giant would now become unstoppable, especially in the affluent “yuppie” market. Cowen and Co. estimates the online retailer commands 70 percent of households earning $150,000 or more. “Prime members are almost twice as likely to buy groceries from Whole Foods than those without Prime membership are, and almost one in three Prime members have shopped at Whole Foods in the past year,” according to Coresight Research.
The crossover between the two consumer groups is likely to increase now that Amazon finally pulled the plug on the grocery store’s loyalty program last month in favor of Prime. With the integration, Prime members in select states can now enjoy Amazon Prime Now, the two-hour delivery service, discounts through the Whole Foods app and an extra 10 percent off sale items.
Werle said the move is a way for Amazon to use “Whole Foods both as a billboard for Prime recruitment as well as a way to satisfy existing Prime members to keep them happy with an added grocery benefit.”
One year ago, The New York Times predicted Amazon Go, the company’s cashier-less store concept, would be central to Amazon’s plan for transforming its newly acquired grocery chain—a development that would have implications across retail.
Though that hasn’t happened yet, what has followed the launch of the first Go location in January is a small flurry of me-too concepts. Just last week, Reuters reported that Microsoft has plans to develop a technology that would also allow shoppers to simply walk out with their purchases. In China, BingoBox, a similar concept that launched in 2016, has since expanded into 300 locations.
As for jobs, Amazon Go VP Gianna Puerini noted at this year’s ShopTalk conference that the store employs plenty of people—they’re just engaged in stocking and customer-facing tasks rather than manning registers.
At the time, Puerini also denied Go technology would invade Whole Foods. “There are no plans to roll this out to Whole Foods,” she said. “They’re fantastic at what they do and we want them to keep doing it.”
Amazon device monopoly
Last year, the Huffington Post foretold a future in which Jeff Bezos would cloak Amazon pricing from anyone not using an Amazon device. Though there’s no indication that that’s on the horizon, the company’s gadgets are factoring into the battle over voice dominance.
According to CNBC, the Amazon/Whole Foods deal has prompted other retailers to fall in line with Google in an attempt to better compete. Walmart, for one, announced a partnership that allows consumers to shop via Google Express in August. In March, Reuters revealed that Target, Home Depot and Ulta were among the chains using Google’s sponsored shopping tool, which lists products from these stores in all of Google’s search results, including voice, for a commission.
“Of course if you’re going to shop through your Echo device through Alexa, it will bring to you to Amazon to buy those things,” Werle said. “Whereas Google Assistant is positioned as a marketplace for different retailers. If I can get Target, Costco, etc. all delivered through my Google Assistant and I like to shop all those different retailers rather than just Amazon, maybe I’d be more inclined to buy one of Google’s voice products.”
Looking ahead, Werle expects more integration between all of Amazon’s offerings in an attempt to provide clear value for Prime members. “I think you’ll see the retailer really consolidating Prime Now, Prime Pantry, Amazon Fresh and Whole Foods all together into a more streamlined service that can serve all different types of trips—fill-in trips, stock-up trips and your immediate needs with the two-hour delivery,” she said, adding you can see the evolution already with Prime Pantry perks for Amazon Fresh members.