Amazon to Acquire Whole Foods for $13.7B

Amazon as a company has many flaws in its culture (if we are to believe the reports), but they seem to do acquisitions pretty well and know when to leave things alone and let them do their thing.

Amazon made its name by shipping consumer hard goods. It continues to do well with non-perishable items. But this nut is the Everest of retail. It will be a challenge to get it to fit into their model.

Whether Bezos treats Whole Foods the same probably depends on whether he has confidence in existing management. It's also possible he has ambitions to totally remake WF into something else. In that case, it doesn't matter what managers are there because Bezos wanted the Whole Foods market presence and not the management team.

I don't think you have much to worry about if you're a WF employee. Amazon actually treats their employees very well. In my experience here, I've never seen any of the things the NY times article talked about, either on my team or any other team I've interacted with. People have a healthy work/life balance (40-50 hours a week), get paid very well (definitely above average, and probably in the top 25% of industry), and in general they are concerned with long-term employee sustainability, rather than letting employees burn out and quit.

I know that there are some stories about bad experiences in the fulfillment centers, but keep in mind that those positions are temporary seasonal work by unskilled labor. That's a completely different environment than full time employees work in.

I'm just guessing, but I'd think WF would tighten up the philosophy a little, probably focus on whole and natural foods more than some of the other philosophies as that can scale. That would mean maybe leading a little less with local, FT, and only organic in favor of whole and natural food. Perhaps some more brand name stuff on the shelves. It provides a great way to roll out Go with a customer base that is probably receptive to it. THen I'd expect more technology stuff, curb side pickup, maybe even free delivery from amazon to WF stores for pickup, maybe.

You cant change WF too much or it just breaks and people like it for what it is. I think it would be easier to start a generic grocer from scatch than turn WF in to a safe-way.

http://www.huffingtonpost.com/2013/01/16/whole-foods-ceo-oba...

> “It’s more like fascism,” Mackey recently told NPR. “In fascism, the government doesn’t own the means of production, but they do control it — and that’s what’s happening with our health care programs and these reforms.”

> Mackey, a libertarian, compared Obamacare to “socialism” in a Wall Street Journal op-ed he penned in 2009. Obamacare would “move us much closer to a government takeover of our health-care system,” he proclaimed.

If it's any consolation, this was just a matter of time. The next 30 years will be "interesting."

I feel like this is a great fit, with whole foods being a progressive company in US grocery space.

I knew whole foods was falling at the hands of Costco, organic for cheaper, but whole foods had great variety and did try harder than all the other big-chain food stores.

Every scamazon victory feels like a loss of the world.

Time to bust this trust. Time for regulators to start breaking scamazon up.

I doubt WF is going to find themselves watering things down - I think they are going to be spending their time learning something from Amazon about logistics and data-driven growth, but they're going to spend a lot of time teaching Amazon about how running a store that has fans as much as it does customers, about how to make that work.

That means they will have to stay true to their cause: Fair Trade and organic deals are part of WF's core brand, and if they remove them, they will lose their fans. What Amazon will want to figure out is how to make that more economic by scaling it. It might be the best thing to happen for animal welfare in the food chain this generation.

Store automation is an interesting one. What Amazon have been trying to figure out is how to take away the pain points of stores (queueing), but that does not mean all staff are removed. Stock needs checking, shelves need stacking, and in my local supermarkets the checkout is already semi-automated, but I still have to queue. Amazon's plan is just to take that further. Does it mean you could have fewer staff? Yes, of course, but you could also decide instead of growing profits, grow the brand: redeploy those staff into genuine customer service roles.

It's an interesting move, I think. I don't think you need to be alarmed if you're at WF, you need to be alarmed if you're at Walmart, Tesco or any other major food retailer anywhere on the globe though.

You know, if they had unions than an acquisition wouldn't really have a negative effect on their benefits

I'd think Amazon would have bought another grocery chain if they fundamentally didn't want the WF business model. We'll see, though.

... or just expand and move people to new stores. Seriously, what's the yearly turnover for front-line positions?

This deal is about expansion, not about tapping into 431 measly location. Amazon knows they can set up satellite warehouses a lot faster and cheaper than they can create a store.

Let's be clear. Whole Foods is not a commodity food supplier. They enjoy high margins because they have cultivated quality and consciousness into their products. They did to food what Apple did to computers. They added the right mix of intangibles with a sense of mission and purpose that people can many buy into. Add on top of that, and Whole Foods adds an expertise procuring a catalog of high-end suppliers for both packages and fresh foods and the safe handling of those foods.

This deal should significantly improve Amazon's food delivery offerings. As a food snob and target demographic, I can say this will significantly improve my chances of using Amazon's food delivery service. I've used it in the past, but wasn't satisfied because I was disappointed with the quality and selection. It wasn't bad, it just wasn't great.

I suspect most people will not be willing to buy the high-end products, but that's not the point. The point is the high-end/high-margin products will be available so shoppers won't have to go out and do supplementary shopping to get the "good stuff". If online grocery shopping is going to become viable, they need to make sure they reduce the need for supplementary shopping as much as possible. Having a leg and data from a real grocery store will help them figure out what they need to do to improve.

The acquisition makes WF an instant partner of Prime Now (unintended pun). The demographic that uses the app and wants groceries now has a reliable and recognized source for said needs. This will only increase the use of Prime Now, thereby making Prime a more entrenched and indispensable service for a certain demographic. Better yet, the benefits will be symbiotic: WF can benefit from Amazon's advanced logistics capabilities. These efficiencies might help the brand shake off its reputation for super high prices.

Strategically, this is a slam dunk for Amazon and certain segments of its customers.

They just bought a higher income grocery business, which they were aggressively seeking to dive deeper into. They'll use the locations for pick-up & delivery points plausibly and they'll bind it to Prime in various ways. They'll probably also leverage Whole Foods into smaller, smart / automated stores, micro whole foods stores in the image they've been experimenting with for self-shopping.

It would have cost them billions to build out the grocery distribution points they were planning to do anyway. They'll save a lot on that cost, and meanwhile the Whole Foods business is generating $500m per year in net income consistently, over ten years it'll plausibly nicely chop into that purchase price and or fund Amazon's experiments.

this is they type of acquisition that seems a little puzzling at first, but makes sense in the context of their overall strategy (unlike most acquisitions, which just remain puzzling since they're usually ego/prestige plays).

Amazon could just buy Shipt and/or Instacart as well, barring FTC intervention.

I'm not sure what B2B partners Shipt has, but I know they have a mobile app. Joining the mobile app to Amazon would give Shipt a boost and Amazon a start, I'd imagine.

[I worked with one of Shipt's mobile developers at a previous position. Go Shipt!]

I'd rather see someone create a business that makes it so that anyone on minimum wage can support and healthily feed a family.

Yes I think we'll see more customer tracking (data of high-incomers) and more automated checkouts.

And eventually an "organic-lite" low-end brand.

These aren't even particular to Amazon, just competitive measures. WF has spawned a number of competitors in the last 5-10 years. Amazon is just brusque enough to do it.

There is truth to that. But the same guideline for healthy shopping applies as much to Whole Foods as any grocer:

"Buy most of your food from the perimeter of the store, less from the aisles."

i.e. Buy fresh, not processed, when possible. Exceptions noted in advance.

I think we need something like progressive economic barriers. Right now this seems inverted, with all the barriers at the "entry" level.

Given their location, I guess they're Telestrian? lol

Implementation will be key. But I also agree in believing that this will be their strategy.

If you have not used AmazonFresh its pretty clearly a competitor for the same income level people as a Whole Foods customer and already offers a ton of organic/fair trade/etc stuff at Whole Foods level prices.

They can also leverage the WholeFoods brand for items, bringing additional customer trust to the quality.

Further, this makes PrimeNow delivery cheaper for them. Again, if you have used AmazonFresh you know that you can add PrimeNow-style Amazon stuff to your purchase for the delivery slot. This brings that capability to every WholeFoods location and expands the reach of people buying PrimeNow items (e.g. people will add things to their grocery delivery at a lower threshold than they will pay $5 and reorder on PrimeNow the same thing).

https://www.youtube.com/watch?v=cA2-iMz479o

I watched this video a while ago about what Amazon Go is a precursor for. In summary, if AWS is renting out server infrastructure for people, then you can imagine that Amazon can make the infrastructure to lease out Amazon Go to other stores. They first integrate it with Whole Foods, then as customers expect no more checkout areas, they will only go to Whole Foods because it's faster and maybe cheaper. Then because customers want it everywhere, Amazon could force other stores like Walmart and Target to integrate Amazon Go infrastructure to their stores, without Amazon directly competing with these stores, and make a ton of money leasing it out without spending money on building whole new stores. Of course, the acquisition could also be like nodes for warehousing and delivery, but both avenues are not mutually exclusive.

Whole Foods already has bars, cafes, and restaurants. Maybe Whole Foods locations turn into places where people can hang out, try new things, and buy online grocery delivery (or pickup delivery as well)?

Who should be trembling in their sleep even more so with this news:

-Blue Apron, HelloFresh, Plated, etc

-Drizzly, alcohol delivery, etc (I think absolutely doomed)

-WalMart? (Maybe completely different customer sets)

-Target, Kroger, other grocery?

-Instacart (I think absolutely doomed)

Whole Foods is a large cafe/fast casual business. I assume competitors in that space aren't scared at all yet... but I would not necessarily sleep well if I were Starbucks or Chipotle. Amazon seems to play to win, and they usually win. Do they want to play is my main question.

With this move they can a) accelerate that and b) kill Instacart.

The press release they are working backwards from is:

"Amazon today announced today they will deliver their own packages in most major cities in America, reducing their reliance on Fedex, UPS and USPS by up to 70%"

Value basics and speciality stores like Aldi and Trader Joes (which have very spotty coverage currently in the US) and regional full-inventory stores (Piggly Wiggly, Harris Teeter, Bi-lo etc) will pick up the crumbs.

https://en.wikipedia.org/wiki/Retail#Global_top_ten_retailer...

They spent a lot of money and energy trying to roll out in store pickup, 2 day pickup, and online grocery shopping, which I have been reasonably pleased with, but I think this is slowly becoming a death sentence for them. The one thing they're missing is the brand.

ALDI doesn't have as much dominance yet. Trader Joes has a bit more, and is all around a great store and reasonably priced compared to Whole Foods.

I really see this as the future. Not the whole foods, upper scale, and more expensive store; model. By and large, the middle class is shrinking and with automation looming, it will only get worse.

Disclaimer: I'm an Instacart investor.

I think that would mean you'd have to stop using the Internet entirely.

Walmart groceries is a sad and pretty recent phenomenon. It got people in the stores just with cheap prices long before they had groceries.

The higher quality meal kits like Home Chef won't have this problem because they give you, for about the same price, more complex recipes with cool ingredients like demi-glace. There are enough things you can't buy in small quantities easily.

Explain?

EDIT: and for those pointing out (correctly!) that amazon doesn't violate antitrust, http://www.yalelawjournal.org/article/amazons-antitrust-para... is a good article

Conglomerates have happened in the past. They become very big until they stop making a lot of money and people realise that they could be more efficient if you split them up. Amazon and Google can afford growing so much because they have a very successful business line. If growth there stops they would likely start selling some parts.

https://news.vice.com/story/amazon-buying-whole-foods-could-...

With centralized planning, there's only one source. If that source is inefficient or corrupt, that inefficiency and corruption stays around. You can try to regulate, threaten, and police it, but nothing can really take it down.

By contrast, Walmart and Amazon might be very large, but they still have competition. Heck, Amazon started less than 25 years ago. Remember when Walmart was going to be the future of retail? Well, now people say it's Amazon. So, it's one generation for the crown to be passed? Apple was in such dire straits that Michael Dell thought they should close up shop and return cash to shareholders. Now look at Apple. Yahoo had the chance to buy both Google and Facebook. Heck, it wasn't really until the 90s that Walmart became what it is today: Sears and Kmart were the big stores.

The point is that, while companies might have large barriers to entry, competition sneaks in. Walmart looked like no one could compete with it. Today, I wouldn't say it's precarious, but it certainly doesn't look unstoppable. Sears was huge and today people make jokes about it.

Companies like Amazon and Walmart create barriers to entry by building up capital. It certainly does stop some competitors, but I don't think we've seen companies able to hold on for long.

It's also not necessarily about whether the company turns a profit. Government-owned, centrally-planned companies don't turn a profit, but they might be run incredibly inefficiently. It's not just Amazon's low-profit range, but it's efficiency that keeps it where it is. Plenty of companies are being run right now with low to negative profits, but also not being run super efficiently.

How many companies have been "the unstoppable juggernaut" for 50+ years? Can we name a few? AT&T isn't the AT&T from 30 years ago. Remember when AT&T had wireless and home TV and broadband and long distance was king? Well, that company thought long distance was the future, spun off its wireless division and sold AT&T broadband. SBC eventually bought what was left of AT&T on the cheap and renamed itself. Microsoft was the unstoppable juggernaut... and then Apple and Google came along. Walmart was that in the 90s and then Amazon came along, people started using other stores, etc. Heck, Verizon and AT&T seemed like no one could compete with them and then T-Mobile comes along and kicks of an era of amazing growth for them. That's an industry that relies on a limited amount of wireless spectrum that's insanely hard to compete in and T-Mobile started grabbing all the industry growth and forcing the big two to lower their prices and offer unlimited. American automotive companies were once kings and while they still exist, they're a lot smaller and have lost that powerful position. Office supply companies were big and everywhere and OfficeMax and OfficeDepot combined to survive and Staples doesn't seem to be anything powerful. I mean, Staples was started in the mid 80s and had a nice upward trajectory and seem to be on a graceful down-slope. Heck, Blockbuster Video. Talk about a staple of American life. Despite stores everywhere, huge brand awareness, etc. they got toppled by Netflix. Oh, Nokia! They were huge and worth nearly 6x what they're worth today a decade ago. They saw the iPhone and just stalled out. They saw Android and stalled. Finally, Windows Mobile, but it was too late/the wrong OS.

There are certain natural monopoly industries like utilities, but even in the cable TV/internet industry, they're looking less secure for the long run. Many people are cord-cutters for TV, opting for Netflix and other internet-delivered video. Many people watch on tablets which might use 4G rather than WiFi and that's likely to accelerate over the next decade as wireless networks get much faster with much more bandwidth. Tesla seems like it might want to compete with utilities over the long run with a combination of solar roofs and home battery packs.

Amazon is certainly powerful, but so was Walmart as Walmart scurries to stay in the game. It's hard to come up with companies that have really been that juggernaut for long. Walmart was a relatively new entrant against entrenched retailers like Sears. Amazon was a new entrant against Walmart. It's certainly not easy to unseat a powerful company, but it also seems difficult to stay at the top. Whether it's inefficiency, inability to pivot to new ways of doing things, or just markets that dry up as they're replaced by something else, companies have a hard time staying in such powerful positions in our society for long.

And that's the difference between a market with powerful companies and central planning. Central planning would have said that Netflix isn't a worthwhile attempt. We already have all these stores, what will we do with the employees, isn't it a waste to shutter so much investment and capital we've built up in the old way of doing things, the new model doesn't look as good economically (yet), etc. In fact, that's basically what companies do. Shipping DVDs? Ridiculous. You're maybe paying $1 for the round-trip on the DVD (including labor) and charging $10/mo for two out at a time? Seems like it would never work. Shipping books? People want to browse at their bookstore, people want goods immediately, and shipping eats into profits. Ridiculous! Better search? Nah, people want portal sites and Yahoo is the biggest! The iPhone? It doesn't even have a keyboard which is an essential part of devices like Windows Mobile. Wireless and cable? We think the future of AT&T is our long distance service which currently has better margins and lower investment cost than that newer technology.

When you have so much invested in one way of doing something, it can be hard to pivot as the world changes. You become hesitant to kill your cash cows and might not try new things aggressively. In a centrally planned economy, no one challenges that. In a market economy, companies come along and do challenge that. Even when offered their competitor, they often shrug them off! Blockbuster was offered Netflix for $50M. It wasn't profitable at the time and seemed niche - PASS. Yahoo was offered both Google and Facebook and thought the prices were too high. Apple announced its iPhone 6-months in advance and most competitors just thought it was dumb. Luckily, people can pursue these endeavors outside of one, centrally planned company.

Now, democracy is supposed to fix this, by allowing you to vote for a different supplier of government every few years. But because of the voting system in some countries (like the US and the UK) it's actually really hard to do this, because everything gets turned into a black/white struggle between opposing forces, rather than lots of options being available for you make a choice between.

WRT redistribution, I suspect the shareholders would jump on that.

I'd suggest studying US economic history, as there isn't a single example of a juggernaut corporation that sustained said dominance very long-term (either due to competition / changing technology or government anti-trust actions).

Amazon is becoming like a chaebol/zaibatsu. The problem I see is them controlling businesses across to wide of a spectrum. They're in retail, computer infrastructure, media, now food. Bezos himself owns a newspaper and a spaceship.

Amazon may not be trying to turn a profit short term, but they still pay huge amounts of attention to price signals. Prices are composable flows of information about demand and difficulty of production.

A private company is generally structured better to remain competitive and efficient as things change.

Think Amazon is getting too big to remain agile? They basically aren't making a profit (they are continually reinvesting instead), as you say. Reinvesting in new strategies is probably the best evidence that a company IS competitive.

>"A central problem faced by Gosplan was the collection of high quality data about supply chains and the estimation of the utility function of consumers."

Red Plenty is a book of fiction, is it not?

https://en.wikipedia.org/wiki/Economic_calculation_problem

It's not. Fascism is characterized xenophobia and militant nationalism, among other things.

You could, I suppose, argue that Obamacare is a weak single-industry example of corporatism, and it's true that fascism (like many things that are not fascism) incorporates corporatism, but calling it fascist on that basis is like saying an explicitly atheist free-market system looks Communist because it rejects religion.

The reason for this particular market is because health care costs in this country have gone out of control, and a major factor in that was people without insurance not paying bills, resulting in higher costs.

That's not facist simply because you don't like it.

I tried Amazon Prime Now in Denver yesterday to buy some fruit. I went for the free shipping in a 2 hour window instead of the $8 one-hour shipping.

I never used Amazon Prime Fresh, because of the monthly fee and sense of commitment that forces. But when you can get a lot of the same stuff (eg, fresh fruit) without the monthly subscription via Amazon Prime Now, it's more tempting to try out.

I'm a little worried about how big Amazon is getting, though.