To say the June 16 announcement that Amazon announced that it will be acquiring Whole Foods, the iconic purveyor of organic wares and interesting beverages, to the tune of $13.7 billion sent shock waves through the retail sector would be an understatement. Whole Foods has been struggling as of late: Amid competition from companies like Target and WalMart, both of which have been ramping up their sales of organic and natural products, Whole Foods has posted seven consecutive quarters of tumbling sales and in May, swapped out five of its dozen board members (one of whom, full disclosure, is Fast Company owner Joe Mansueto) in an effort to inject new energy into the company. By selling to Amazon, they’re throwing a Hail Mary.
But as substantial as the deal is, it’s perhaps not all that surprising, once the aftershocks fade. “I was surprised, but not too surprised,” Joe Dobrow, who was head of marketing at Whole Foods until 2000, and subsequently wrote the book Natural Prophets: From Health Foods to Whole Foods—How the Pioneers of the Industry Changed the Way We Eat and Reshaped American Business, tells Fast Company. Rumors of a Whole Foods sale had been circulating for a while, Dobrow says; competitors like Albertsons, Kroger, and Publix had all expressed interest.
While selling out to a larger grocery retailer with a bigger reach might have given Whole Foods the financial boost it needed, that would have entailed sticking with the status quo. “If you’re looking at the talent pipeline at Whole Foods—following CEO John Mackey–they’re all grocery guys over there,” Dobrow says. “What Whole Foods needs is innovation, and if you’re looking for where that brilliant visionary leadership is going to come from, it’s not going to be from within Whole Foods. But Amazon could be a huge booster shot of innovative leadership, and set Whole Foods on a path to adapt to the 21st century, which has been lacking.”
The entire $800 billion grocery industry as a whole, Dobrow says, “is facing some uncertainty.” Caught in the middle of a will-they-or-won’t-they dance with online retail—fueled in part by Amazon, whose AmazonFresh grocery delivery service debuted in 2013—the financial performances of brick-and-mortar groceries like Kroger, which have long been predictably strong, are faltering. While online grocery sales account for only 4.3% of the market currently, a report from Nielsen this year predicted that they’ll reach as much as 20% of the market share by 2025. “That gives you a sense of how much of a ramp there is,” Dobrow says.
And in buying up Whole Foods, Jeff Bezos, the CEO of Amazon, seems to have identified another sector of the grocery industry with a huge growth potential: natural and organic food. Despite the enormous growth of Whole Foods since it was founded in 1978, and despite the piqued interest of larger retailers in selling higher quality products, natural and organic foods still represent only around 5% of all food sales in the United States.
“Before this deal, you heard people in the industry saying that if we could get organic sales up to 10% of the market share, that would be a huge chunk of business, and represent a huge societal change,” Dobrow says. “So I’m sure Bezos took a look and realized it was a no-brainer for Amazon to play a role in expanding the percent of the market taken up by natural and organic food.”
And the way they’ll be doing so appears will likely be through ramping up Whole Foods’ e-commerce component. For those Whole Foods devotees concerned that the Amazon acquisition will tarnish the store’s signature community-centric and friendly ethos, there’s little cause for immediate concern: Amazon has said that proceedings at Whole Foods’ 456 outposts, as well as its handful overseas and in Canada, will remain largely unchanged. Amazon, at least initially, says it has not implemented the technology it developed to facilitate Amazon Go, its Seattle-based cashless convenience store, nor are there any planned payoffs. Of course, that could all change in the future, but the company has let subsidiary Zappos largely chart its own, often idiosyncratic course. (On the other hand, there is certainly the possibility that Amazon, always ruthless, thought this was just the cheapest way to get a lot of urban real estate for warehouses.)
What might change: According to Dobrow, it would not be surprising to see Whole Foods launch some loyalty programs, and integrate Amazon purchase algorithms into their retail experience. Previously, Dobrow says, such initiatives have not fit into the Whole Foods ethos, but “now that the company is owned by Amazon, they’re going to accept the notion that Whole Foods should be analyzing their data and giving them suggestions and recommendations, and auto-refilling their cupboards based on past purchase history, or installing mini-kiosks in malls or airports.”
If Jeff Bezos is putting Amazon backing behind a retailer that, despite its cult following, still has only a small share of the market cornered, he is hopefully making the statement that Whole Foods—and the kinds of products it sells and supports—is the direction we’re all heading in.