Today I have been asked many times about my take on the headline “Amazon Buying Whole Foods.” What I think is that this whole (no pun intended) thing is a little surprising to me. For one thing, the 13.7 billion dollar valuation doesn’t seem that big, especially when compared to all the crazy valuations and money going into all of the Whole Foods wannabes and food platform companies like Blue Apron. But where I think this all falls apart is the same Achilles heal that Whole Foods had a year ago.
But an even bigger problem may be that Whole Foods has a price perception problem and has been unsuccessful at expanding their core consumer base. It is a super premium product, available to the elite, the exclusive–not the everyday American or Amazon user, so its cost structure is the one thing that I am struggling with. This is what precipitated the 365 store format to target millennials. It remains to be seen if they are able to double sales per square foot to Trader Joe’s levels. I am not saying it’s unsolvable, just don’t know how a company like Whole Foods lowers its prices to meet the Amazon consumer without impacting the very culture that makes the Whole Foods brand valuable.
The rumor of Whole Foods being up for sale happened long before the activists came in and changed the Board of Directors, which is what happened a couple of months ago to make sure the sale happened. The cause of the shake up a year ago was around the same issues that apply today and that don’t go away simply with Amazon buying Whole Foods.
Also, you have a super premium brick and mortar retailer, that has in my opinion, done a minimal job embracing e-commerce now merging with the e-commerce master, who is looking for a physical footprint. Interesting in light of the success Wal-Mart is having with Jet.com and the click and brick pick up model; you order on-line, then go through a pick up location for the fulfillment versus home delivery.
Amazon has been testing some very innovative retail store formats for some time. So my assumption is that a clear path was opened for Amazon buying Whole Foods when obvious rumored buyers like Kroger and Wal-Mart were either told no by the justice department, or couldn’t (wouldn’t) even come close to Amazon’s valuation.
Net, for some reason I don’t think its over just yet. My feeling is that this situation is ripe for a big player from China or even South America, since the Whole Foods brand is so coveted. I wouldn’t rule out a crazy food-service play, either.
Not that I am an expert, by any means, but I have spent a career as a supplier to Whole Food and the last 10 years or so working with Amazon through our innovation group, CodeBlue. For what it’s worth I am happy to engage in this conversation, especially since this is so disruptive to the entire grocery retail industry.
YEAH! So excited to be in business in these wonderful chaotic and disruptive times.
Onward—
AZ
