We’ve written several pieces related to Amazon’s takeover of Whole Foods including these:
Amazon/Whole Foods Uses Tricks Of The Trade And Easy Media Manipulation To Dampen ‘Whole Paycheck’ Reputation
Is Amazon.com’s Deep Dive Into Grocery And The Whole Foods Brand Worth $13.7 Billion? Any Significant Investment In Bricks And MortarWould Torpedo Amazon.com’s Coveted PE Ratio
Now the word is out that there are changes underway in the manner in which Whole Foods procures and merchandises product. The Wall Street Journal ran a piece titled, Amazon Puts Whole Foods on fast track to Conventional Supermarket, and subtitled it, “Specialty grocer will no longer allow ‘brand advocates’ in stores, a potential blow to local sellers.”
Here is the key point:
Whole Foods will change the way companies can sell and market their products in its stores beginning next year, one of the biggest moves yet in its push to operate more like a traditional market.
Under the changes planned for April, Whole Foods’ 470 locations will no longer allow brand representatives to promote their products or check to make sure they are stocked and displayed correctly.
Whole Foods also is centralizing much of its decision—making regarding the assortment of products across the chain. Instead of allowing brands to frequently pitch their products to individual stores or regions, Whole Foods executives in its Austin, Texas, headquarters will choose a higher percentage of the inventory….
“This is another step in the conventionalizing of Whole Foods as we know it,” said Jim Cusson, of Theory House, a brand consultancy based in Charlotte, N.C.
This is the big point that was missed in the fawning media coverage of the Whole Foods acquisition by Amazon. The chain, as we know it, is in fact stuck between a rock and a hard place.
It is, of course, possible that Amazon will decide to roll out physical stores. Omnichannel retailing is all the rage and, perhaps, Amazon will see utility in having thousands of stores. After all, Aldi says it will open an additional 900 stores in the next five years, bringing its total to over 2,500 in America.
We think it very unlikely, as we suspect the return would be inadequate but it is certainly possible. What is certain, though, is that if Amazon rolls out all these Whole Foods stores, the meaning of the brand will change.
There are just not enough neighborhoods with high education and income to sustain massive roll-out and still support the traditional Whole Foods concept..
This mismatch between what Whole Foods is and what people imagine Amazon wants is bizarre. For example, hundreds of journalists and analysts have claimed that these Whole Foods stores are crucial to Amazon’s click-and-collect strategy. There was also an assumption that Amazon needed Whole Foods because Wal-Mart will use its stores as pick-up depots for online ordering.
But Amazon’s stores are nothing like Wal-Mart supercenters. First, they are much smaller — you are talking about stores under 40,000 square feet as opposed to 200,000 square-foot supercenters! Second, many are in urban locations without parking.
Perhaps Amazon will want to use these locations for click-and-collect. if they do so, they will have to, for all practical purposes, end Whole Foods as we know it. These will be Amazon stores filled with lockers with perhaps a fresh-foods or convenience-store portion for impulse purchases or foodservice operations to sell people a coffee or drink or pizza when they come to collect their stuff.
All the things that make Whole Foods special to its customers, whether through perception or reality — unique products, unique supply chains, the imposition of unique ethical values on the supply chain — all these things limit the scalability of the concept.
You can’t observe that people really like Ferraris and then think you can buy the company and expand the brand by selling Ferraris to millions of people. You can change Ferarri, call a $30,000 car a Ferrari and, for a few years live on the brand legacy built when the name meant something. But Amazon can keep the Whole Foods concept — in which case its roughly 2% share of the US grocery market is unlikely to dramatically change — or Amazon could mainstream its offer — in which case Whole Foods as we know it will be just a memory.