In the grocery world, the purchase was a cataclysmic event. “The acquisition of Whole Foods was the alarm bell that started all these multibillion-dollar investments in digital grocery capabilities,” says Jon Springer, executive editor of the trade publication Winsight Grocery Business.
Whole Foods itself revolutionized that industry. From one health food store in Austin, Texas, that opened in 1980, it became a household name and changed the entire conversation around groceries. Gary Fine, a former Whole Foods employee, says, “Whole Foods was a mission-driven company, and the mission was to change the world, have good stuff, and to change the way people eat. Well, you know what? They won. They won. You can get organic food, you can get natural foods everywhere, you can go to your little corner grocery store, you go to Safeway.”
But the demand for organic, natural food created a new problem for Whole Foods: Other supermarket chains were upping their game. And that competition could take advantage of the fact that Whole Foods—or, as people called it, Whole Paycheck—had gotten a reputation for high prices. Conventional grocery stores began to replicate Whole Foods’ organic offerings, but much cheaper.
In 1997, Whole Foods started a private label line of products it called 365 Everyday Value. The idea was to offer some more affordable items—but it wasn’t enough. By the mid-2000s, CEO and co-founder John Mackey realized that Whole Foods no longer stood out from the crowd. He said in a 2004 interview, “When we started out, our ideas were really on the fringe of the culture. And what’s happened over time is they’ve migrated from the fringe to sort of the cool and hip. And now it’s entering into the mainstream.”
Whole Foods had expanded rapidly, far and wide, on the basis that it brought something new to every neighborhood it opened a store in. But once the mainstream caught up to what Whole Foods was doing, and began to do it cheaper, the company’s luster started to fade.
Conventional grocery chains like Safeway and Kroger, with their bigger scale and often greater efficiency, were offering organic food at cheaper prices in stores that were right around the corner from consumers all over the country. Once upon a time, Whole Foods had been able to defeat competitors by buying them up. But these rivals weren’t like those independent health food chains. They were bigger and well resourced, and they knew how to compete. Whole Foods was struggling. “They were pretty much up against the wall here,” Springer says, “and Amazon kind of came out of the blue and said, ‘Here’s what we’re going to pay for you. Let’s make a deal.’ And apparently it came together very quickly, and that was a big relief for them.”
According to Springer, the sale “was received as a monumental blow” in the grocery industry. “Stock of all the conventional supermarkets and the Walmarts of the world just got devastated by this one announcement.” The fear wasn’t so much about what Amazon would do with Whole Foods specifically; it was just the fact that big, bad Amazon was finally entering the grocery business in a major way.
For Amazon, acquiring Whole Foods was in part just a way to encourage people to sign up for Amazon Prime memberships, joining Amazon’s powerful loyalty program in exchange for discounts on their groceries. But there’s more than that. A lot of people think Amazon saw buying and operating Whole Foods as a way to learn about the world of groceries and then to use that knowledge to launch a larger, more mainstream grocery chain. Now the company may be taking its first steps toward doing just that: New stores are popping up around the country under the Amazon Fresh banner. “People anticipate that Amazon will roll out hundreds of these Fresh stores, not just dozens but hundreds, in the years to come,” Springer says.
But a massive nationwide chain of Amazon Fresh stores might not even be the end goal for Amazon. Those Fresh stores might just be Trojan horses for Amazon’s actual goal, which is same-day grocery delivery to everybody, everywhere. Online grocery shopping has been Amazon’s white whale for some time now. Groceries make up a consistent chunk of most people’s spending, and they’re kind of the only online shopping niche that Amazon hasn’t yet been able to dominate. Before the COVID pandemic, online purchasing was only 2 or 3 percent of the $800 billion grocery business. Since the pandemic started, it’s been hovering closer to 10 or 11 percent. Even as the pandemic recedes, people expect online grocery buying to keep ramping up. But it’s a tricky business.
Adapted from Stevenson, S. (2021) It’s Finally Clear Why Amazon Bought Whole Foods, Slate, June 2021.
Are Whole Foods and Amazon’s vision and mission statements complementary or contradictory?
What can Whole Foods learn from Amazon, and vice-versa?