Will Amazon become a dominant force in grocery after acquiring Whole Foods?

Discussion
Photo: Whole Foods
Aug 24, 2017
George Anderson

Amazon.com’s acquisition of Whole Foods Market is moving full steam ahead after the organic grocery chain’s shareholders approved the merger of the two companies yesterday and the Federal Trade Commission (FTC) gave its okay for the deal to proceed.

With the FTC’s approval, the last potential stumbling block between the parties has been removed. Before yesterday, there were concerns that the FTC’s review process might drag on as members of Congress and others have expressed unease over Amazon’s growing dominance in e-commerce.

Some question whether current antitrust guidelines are able to gauge the influence that technology platforms such as Amazon have on competition within the marketplace. Critics have pointed at Amazon’s profitable Web Services as providing the company with financial stability that it uses to undercut competitors on the e-commerce side of the business.

Lina Khan, a fellow at the New America think tank, told Bloomberg, “Amazon challenges a lot of the current antitrust orthodoxy and at some point antitrust enforcers are going to have to confront that fact.”

President Trump has also recently taken shots at Amazon on Twitter, claiming it “is doing great damage to tax paying retailers” and causing job losses. Much of Mr. Trump’s criticism appears to be connected to unfavorable coverage of his administration by The Washington Post. The paper, which is owned by Amazon CEO Jeff Bezos, is not connected to the e-tailer.

With its acquisition of Whole Foods, Amazon will gain 460 stores along with the distribution centers that supply them. The organic foods chain currently holds a 1.4 percent share of the U.S. grocery market, according to Bloomberg. Amazon’s share of the market is described as “negligible.” Despite this, many see Whole Foods’ locations as a jumping off point for Amazon’s grocery e-commerce ambitions that include both home delivery and in-store pickup.

Industry watchers expect Amazon to move quickly to bring greater automation to Whole Foods stores. While announcing that Whole Foods would continue to operate independently, many believe that Amazon will add scale up the organization to help the organic grocer rid itself of its “Whole Paycheck” reputation.

DISCUSSION QUESTIONS: Does the current process for determining anticompetitive activity properly account for companies such as Amazon? Do you expect Amazon to become a dominant force in the grocery business with its acquisition of Whole Foods?

Braintrust
"This will dramatically modernize and, hence, change for the better the broader food distribution sector."
"Amazon has already become a major force in the industry by its recognized disruptive impact on grocery shopping. "
"Amazon has all the ingredients to become a leading national grocery supplier and I give it around five years before they get a majority..."

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26 Comments on "Will Amazon become a dominant force in grocery after acquiring Whole Foods?"

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Max Goldberg
BrainTrust

I expect Amazon will become a more important player in the grocery business, but it’s too soon to be discussing antitrust investigations. The marketplace is changing. Amazon happens to be a leader in bringing change forth. Change is a constant in business. Rather than looking for government to provide regulatory relief against change, retailers should be on a constant path of innovation.

Neil Saunders
BrainTrust

I could not agree more, Max. Those calling for anti-trust investigations are either playing political games or have a vested interest in clipping Amazon’s wings. The bottom line is that Amazon is benefiting consumers and is driving innovation in the market.

Phil Masiello
BrainTrust
The market for goods and services in the U.S. is a wide open space. No one forces customers to buy from Amazon. Customers choose to buy from Amazon because Amazon provides value. I see nothing anti-competitive about Amazon or its purchase of Whole Foods. The groups who scream about anti-competitive issues are the weak operators. The grocery industry is ripe for disruption. With the exception of a few great operators, most grocery stores do not understand their core customer. They achieve success by real estate acquisition. What Amazon understands are consumers. They will bring value through automation and streamline a… Read more »
Lee Peterson
BrainTrust
Walmart is a half-trillion dollar company. Half — or more — of that business is in grocery. In order to become a trillion-dollar company themselves, Amazon literally HAS to dig into that. So yeah, they will become a dominant force in grocery. Undoubtedly that has been the goal for years. It’s just not that easy, and Walmart gets that. Why do you think Walmart has accelerated BOPIS, self checkout and e-commerce? They’re protecting their house. Big stakes or, more succinctly put, all the stakes. I wouldn’t worry about anti-trust and Amazon for some time to come. But if they bite… Read more »
Art Suriano
BrainTrust
I don’t think anyone knows what the new Whole Foods will be like under the control of Amazon. Do they turn the stores into the first fully-automated grocery chain with amazing technology? Do they change their products? Do they concentrate on opening many more locations? The truth is that no one knows and what we have mostly is speculation and to some degree rumors. Amazon has built an amazing company. Have they been profitable? Not really. Have they caused damage to many other competitors? Yes. But they’re also continuing to push the envelope forcing competitors like Walmart to be creative… Read more »
Adrian Weidmann
BrainTrust

Amazon will bring its expertise in automation and distribution technology to the grocery industry. This will dramatically modernize and, hence, change for the better the broader food distribution sector.

I do believe Amazon Web Services (AWS) provides an unparalleled funding source from the very companies that it competes with. There are retailers who will avoid doing business with any cloud services providers that leverage AWS. There are alternatives but retailers and brands need to be open to innovate and leverage new resources and explore new business models instead of simply trying to digitize status quo analog processes.

Gene Detroyer
BrainTrust
Amazon is already a force in the grocery industry and is likely to become a dominant force, but not because of the Whole Foods acquisition. Amazon is already a major competitor to supermarkets, with Amazon Pantry (a day doesn’t go by that I don’t see multiple Amazon Pantry boxes in my building) but also with regular Amazon. (Are there any traditional CPG brands you can’t get on Amazon?) The Whole Foods acquisition gives Amazon access to a unique niche and access to a different customer than those who buy the traditional CPG brands on Amazon and Amazon Pantry. The acquisition… Read more »
Mohamed Amer
BrainTrust
On the FTC website, they address anti-competitive practices as those that reduce competition, reduce quality or levels of service or innovation. The FTC also notes that “it is not illegal for a company to have a monopoly, to charge ‘high prices,’ or to try to achieve a monopoly position by aggressive methods.” Advances in technology tend to disrupt existing industry equilibrium with those clinging to the past claiming foul play as a defensive measure. Combining available technology with new business processes to meet and even guide current and future customer expectations is not anti-competitive, it’s good business. The current process… Read more »
Herb Sorensen
BrainTrust

YES. Good grief! Food drives global retail, period. It creates traffic for anything else a retailer might sell. It is THE single factor that drove Walmart to its number one position, beginning in the ’80s.

Shep Hyken
BrainTrust

Amazon is becoming a force in the grocery industry. They are making traditional retailers rethink their business strategy. This is all good for the consumer. Amazon has loyal customers that are waiting to see how the acquisition of Whole Foods will enhance their Amazon experience. All this leads to the changing of the industry as it evolves from being based around a traditional brick-and-mortar retailer where customers come in and shop to other models that include digital, subscription, delivery and more.

Ricardo Belmar
BrainTrust
Amazon succeeds for two primary reasons — first, they truly put the customer first in everything they do and second, they are not afraid to innovate via experimentation where other retailers do not. Their purchase of Whole Foods in some ways is a demonstration of Amazon “growing up” as both a retailer and an organization. Does this make them anti-competitive in some ways? It’s not clear — just because they have the ability to enter almost any market and compete with established brands shouldn’t mean they need to come under scrutiny. They don’t always succeed in every market — remember,… Read more »
Cathy Hotka
BrainTrust

No one knows what Amazon plans to do with Whole Foods — but it won’t be the status quo. Retailers who sell groceries will want to focus on creating their own path to customer engagement and satisfaction or risk chasing the new kid on the block. There is no leading from behind here.

John Karolefski
BrainTrust

Overall, Amazon is emerging as a dominant force in grocery. There are two side effects: One, it is bringing lower-priced organics to new customers who would not shop at Whole Foods because it costs too much or because there is no Whole Foods near them; and two, it is increasing the popularity and sales of private label products.

FTC concerns are premature, but having the growing power and influence of the entire Amazon empire in the hands of one person — CEO Jeff Bezos — is not a good thing.

Neil Saunders
BrainTrust

No, it won’t become a dominant force overnight. The combined grocery market shares of both organizations will be less than 2 percent of all food and grocery spend, and Whole Foods will remain a niche player — in the short term at least. What is clear, however, is the trajectory. Amazon will use Whole Foods as a springboard for growth in grocery, perhaps using the 365 brand in its own online offering, perhaps increasing its delivery capabilities, perhaps adjusting the Whole Foods pricing model. Over time it will likely succeed.

William Hogben
BrainTrust

Anti-trust frameworks will be hard to consistently apply for technology companies and have been left too long.

Amazon has all the ingredients to become a leading national grocery supplier and I give it around five years before they get a majority of grocery shopping from households with Amazon Prime.

Craig Sundstrom
Guest
I guess the respondents don’t like numbers. WF has a lofty 1.4% share of grocery, and yet 4/5 think it’s somewhat or (even) VERY likely this will somehow lead to “dominance”… hmmm. Of course it’s possible Amazon could become “dominant,” whatever that means — after all they became pretty dominant in online from not even existing a few years ago — but if so, it will have little to do with the WF acquisition. It will be because they have a large, pre-existing customer base. A better question might be “will online ever be the dominant mode in grocery?” I… Read more »
Cindy Thierry
Guest

Amazon’s acquisition of Whole Foods is already having an impact with the announcement of Aldi testing delivery service in three major markets to compete with Amazon/Whole Foods. In fact, was Aldi already taking on Whole Foods with the move to organic in its low cost format? As someone already commented, grocery is ripe for disruption. With its one hour delivery and on track to open 500 stores this year, it may be Aldi who is the one leading the disruptions.

Richard J. George, Ph.D.
BrainTrust

Amazon has already become a major force in the industry by its recognized disruptive impact on grocery shopping. Technology, customer intimacy, convenience and value pricing are forcing “brick & mortar” retailers to adapt or suffer loss of market share. The recently announced Walmart/Google partnership is further evidence of the impact of Amazon. As I have said before, “Don’t bet against Amazon.”

Carlos Arambula
BrainTrust
For all its popularity, Whole Foods remains a non-essential niche grocer and the noise regarding the merger appears to be influenced by political posturing. At a glance, It appears that the current process for determining anticompetitive activity doesn’t apply to an Amazon-Whole Foods merger and the FTC “okay” appears to confirm it. Technology aside, I believe the merger will help expand the Whole Foods franchise to Amazon’s consumers who don’t have the geographical proximity or are intimidated by the brand. I don’t see Amazon becoming a dominant force in the grocery business. Whole Foods’s 1.4% of the grocery business does… Read more »
Ed Rosenbaum
BrainTrust

I have no idea how Amazon is going to do this. But I have no doubt they will. They always seem to find a way to make things happen that no one else thinks will work. Look at them now and one can’t help but believe they will do anything they set their sights on accomplishing.

Doug Garnett
BrainTrust

I’d suggest we separate “influence” from “market share.”

Amazon brilliantly controls the discussion after they get involved in a market. So their influence on the grocery biz will likely be quite large. We’ll see them do some very interesting things. But, also, we’ll get really tired of articles like “The 10 Things to Learn from Amazon’s Whole Foods…”.

But market share? I don’t think they’ll establish a large national market share with their Whole Foods involvement. They don’t need the acquisition to do that in order to have a major impact on their bottom line — a bottom line which needs help.

George Anderson
Staff
This is from a press release just issued by Amazon and Whole Foods: Here’s what will be new in Whole Foods Market stores on Monday and what customers can expect over time as the two companies integrate: Starting Monday, Whole Foods Market will offer lower prices on a selection of best-selling staples across its stores, with much more to come. Customers will enjoy lower prices on products like Whole Trade bananas, organic avocados, organic large brown eggs, organic responsibly-farmed salmon and tilapia, organic baby kale and baby lettuce, animal-welfare-rated 85% lean ground beef, creamy and crunchy almond butter, organic Gala… Read more »
Ricardo Belmar
BrainTrust
It didn’t take long for us to get a hint at what’s to come. The price reductions seems like an obvious choice. Expect Amazon to continue lowering prices on more products as we all know they won’t let margin stand in the way of customer acquisition! Integrating Amazon Prime as Whole Foods loyalty program brings a number of interesting possibilities. Could shopping rewards come in the form of credits for use on Amazon Music or Video services? I’d expect this to work in both directions beyond the in-store benefits alluded to in the release. Bringing in private label products into… Read more »
Mohamed Amer
BrainTrust

Amazon has already crunched the numbers to deliver immediate impact. I bet that the short list of products with lowered prices will touch 95%+ of Whole Foods’ weekly customer base. The impact of introducing Amazon Prime as a Whole Foods customer reward program will bring a significant jump in customer insight to the WFM business.

The fun is just starting!

Dan Raftery
BrainTrust

Two additional points. One – Amazon has been having trouble with apartment and condo deliveries in urban areas. Some buildings with secure access have discontinued acceptance of parcels. Consumers in unsecured locations experience hallway or porch theft. Many Whole Foods stores are located in urban markets, which I expect to become pick-up points for Prime members.

Two – Delivering fresh products is very problematic. Why fight it? Shoppers want to pick their own lettuce. At least some do. This bolt-on business gives Amazon both options.

Paul Donovan
BrainTrust
Four companies control about 80% of the US Grocery market. Walmart, Kroger, AB Acquisition (Albertsons) and Ahold/Delhaize. According to Cowen (2016), AMZN Fresh is an $8.7B business (excludes the center store business) so already Whole Foods plus Amazon is at least No 7 in the US Grocery business with a combined revenue of > $20B in grocery. (the 1.x % figure mentioned above is somewhat misleading in this regard) . All this without leveraging the combined assets. From 2009 Walmart went from about 25% of US grocery to about 50% now, so I think there is plenty of room for… Read more »
wpDiscuz
Braintrust
"This will dramatically modernize and, hence, change for the better the broader food distribution sector."
"Amazon has already become a major force in the industry by its recognized disruptive impact on grocery shopping. "
"Amazon has all the ingredients to become a leading national grocery supplier and I give it around five years before they get a majority..."

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