Happy 5th Anniversary! Amazon acquired Whole Foods in 2017. At that time speculation was rampant as to how Amazon would further enter and disrupt the retail food, foodservice & food distribution channels. Questions abounded as to whom will they acquire next? Which distributor or wholesaler would they purchase? And on and on and on!
So, here it is 2022, and the question is, “Has it been a happy and successful marriage”? There are certainly different opinions and perspectives. While in all fairness, some may consider five years to be a relatively short time in the life of the food business. In our opinion, even in light of the pandemic and supply chain issues, it is a significant amount of time and the expectations appear to have fallen well short in terms of Amazon’s food industry growth and the kinds of industry “Amazon disruptions” most were anticipating.
Shortly after the acquisition, the Whole Foods loyalty programs were changed/aligned with Amazon Prime. However, even while amassing an incredible amount of data on food shopping, Amazon did not appear to be making further significant investments in the food industry to use this $13.7 billion acquisition to make Amazon an even more significant food industry leader. Recently there has been some indication that Amazon is seriously considering closing other types of stores and re-focusing on Whole Foods.
Amazon’s purchase did motivate both Whole Foods internal changes as well as motivate competitive responses. Internally, Whole Food introduced operational changes such as centralized operations, marketing, and purchasing. While Amazon did not eliminate local suppliers they changed product assortment to include some larger brands, while also reducing some prices in an effort to modify Whole Foods reputation as “Whole Paycheck”. Externally, it appeared Amazon motivated competitors such as Kroger and Walmart to accelerate their e commerce capabilities and expand their offering of which they indeed have done.
Whole Foods unit growth in the past 5 years has not been “spectacular”. When Whole foods was acquired they had around 450 stores. Today that number is in the range of 525 (in the US Canada and UK). By way of reference Kroger has approximately 2800 stores under their various banners..
One seeming outgrowth of the food industry learnings for Amazon is the development of the Amazon Fresh Stores (approximately 16 units) and the Amazon Go stores (approximately 30 units) with cashier-less check out. Amazon is now testing the “Just Walk Out” technology in some Whole Foods locations .
Other areas of interest/focus have been delivery and pick up. As noted in a previous Pentallect POV, in Q3 of 2021, Whole Foods implemented a $9.95 delivery fee, which was dubbed “The End of the Free Lunch Era!” Walmart, Kroger and other retailers have also used various programs, charges and third party services in an effort to tackle the infamous “last mile” of distribution. Seemingly more popular than delivery, order pick up seems to favor Whole Foods competitors given the large disparity in the number of stores.
Regarding foodservice, Pentallect believes Amazon sales are in the range that would put them in the top 10 foodservice distributors. While they certainly have a lot of headroom and will grow in retail food and foodservice, we believed then and now, Amazon’s potential will continue be more modest than many had expected.
Finally, as you probably have seen, Amazon recently announced the acquisition of One Medical for $3.9 Billion. It is noteworthy they previously acquired PillPack Inc. While Amazon is a HUGE company with incredible resources that will continue to grow in the food industry, perhaps now the speculation will shift to who else they will acquire in the healthcare space 😊.
By: Gary Karp