Whole Foods to expand nationwide to drive Prime Now growth

Discussion
Photo: RetailWire
Jan 02, 2019
Tom Ryan

Amazon.com is reportedly planning a nationwide expansion of Whole Foods with the support of — and in support of — its two-hour Prime Now grocery delivery service.

Spreading more Whole Foods locations deeper into the suburbs will expand the range of Prime Now, which offers free two-hour and $7.99 one-hour delivery to Prime members for orders over $35 from Whole Foods. In February 2018, the service rolled out in select markets and in October expanded to 63 cities.

In early August, Prime Now grocery pickup was launched from Whole Foods locations. Shoppers can pick up their orders for $4.99 within 30 minutes or for free in an hour on orders over $35. The pickup service is now available in nearly 30 cities.

According The Wall Street Journal, Amazon plans to expand Prime Now across its approximately 475 Whole Foods’ doors and ramp up the grocery chain’s expansion. Amazon representatives have visited remote areas, including southern Utah and Wyoming, seeking locations around 45,000 square feet, slightly larger than the average Whole Foods store to accommodate delivery and pickup of Amazon orders, according to the report.

In its holiday-selling releases, Amazon announced that it had delivered more turkeys than ever through Prime Now and AmazonFresh. It also noted that the last Prime Now delivery was made on Christmas Eve at 11:30 pm in Berkeley, CA.

For Whole Foods, the move shifts the chain back into expansion mode from a slow growth and cost-cutting phase prior to Amazon’s purchase in August 2017. The new growth first strategy is expected to help morale at Whole Foods that has been hurt by the layoffs, belt tightening and efficiency-seeking maneuvers.

An analysis by data firm Numerator that came out last September found that Amazon’s move to lower prices had increased spending frequency at Whole Foods by Prime members. Access to in-store Whole Foods discounts was also found to be the leading reason non-Prime members were interested in becoming members.

The expansion of Whole Foods and Prime Now also comes as national, regional and local food retailers are all continuing to invest aggressively in rolling out grocery delivery and pickup.

DISCUSSION QUESTIONS: How aggressively should Amazon expand Whole Foods to support Prime Now’s growth goals? What will this development mean for the grocery industry and competitors to Amazon and Whole Foods?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Amazon may be right that Whole Foods has plenty of room to grow, but any given location should be profitable in its own right, not just as a glorified warehouse for Prime Now."
"Oh to be a fly on the Kroger board room wall listening to this announcement."
"As opposed to a big box acquisition, expanding Whole Foods as means to have a presence in both sides of retailing makes better sense..."

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29 Comments on "Whole Foods to expand nationwide to drive Prime Now growth"


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Dr. Stephen Needel
BrainTrust

If I have this right, we’ll have more Whole Foods stores so that Amazon can deliver to more people? Seems a bit backward to me — generate the interest in Whole Foods products (and prices), then add on the value of Amazon delivery. Otherwise, why don’t they just build warehouses?

Richard Layman
Guest
13 days 18 hours ago

Because it’s about supporting Amazon Prime as a platform, and capturing an increasingly larger percentage of the consumer spend overall from Amazon Prime members. If you look at Amazon as a warehousing company specifically, you miss the point. Presumably, members who buy at Whole Foods spend more than members who don’t, etc., hence making this investment in expansion makes sense.

Art Suriano
BrainTrust

First and foremost, for all those who believe that stores are doomed and will be taken over entirely by the internet, look again because what we see here is the perfect blend between e-commerce and brick-and-mortar. Amazon has experienced great results with investing in Whole Foods. It’s true that they have revamped the business model making it more in line with the needs of Amazon, but the success achieved shows the need for stores and e-commerce to work together.

Second, Amazon’s investment in Whole Foods will continue to build them into a powerhouse retail food chain and with the expansion will bring Whole Foods and Amazon many new customers. What other grocers need to look at here most importantly is how they can continue to blend their own e-commerce business with their stores. I see today so much emphasis on delivery and shop at home which is an excellent service, however, without incentives to get customers into their stores, grocers who continually lose traffic will not survive.

Richard Layman
Guest
13 days 18 hours ago

I don’t live in markets where there are Fred Meyer, Meijer, Kroger Marketplace, or H-E-B Plus stores. Do these companies have the ability to blend food an other merchandise categories in e-commerce the way that Amazon does? Is that a competitive advantage for Kroger banners and H-E-B going forward?

Neil Saunders
BrainTrust

Using Whole Foods stores as a base for online services, Amazon has a potential reach of around 187.1 million Americans with a combined grocery spend of $668.5 billion. Its share of that market is tiny. The reason? Despite the price cuts, Whole Foods’ proposition is still far from optimal meaning that value for money is poor. Fixing this should be the key priority.

Expanding the store base into areas like Wyoming, Utah, Montana, and Nevada where Whole Foods is severely underrepresented will allow Amazon to grow share, especially online. However, it should not be done at the expense of fixing existing issues to generate gains.

Michael La Kier
BrainTrust

Last year there were multiple rumors that Amazon might buy Target to help their expansion into grocery and help enable further market penetration overall. Now, with the news of aggressive expansion of Whole Foods, a Target purchase seems less likely. It also seems an indication that Amazon realizes grocery delivery is hard without the added benefit of in-store traffic. This will be interesting to watch in 2019.

Keith Anderson
BrainTrust

For once, Amazon seems to be reacting to the speed of competitors like Walmart and Kroger and Instacart and its network of partners, which collectively are expanding online grocery availability on a local level much faster than Amazon has to date.

In online grocery, winning that first order is a huge hurdle — but if you deliver a good experience, you can keep a household loyal and grow baskets over time. While a centrally-picked fulfillment model may be the optimal logistic model for large, high-density urban areas, Amazon needs to move faster to reach households in the rest of the country.

It will be interesting to see how Whole Foods evolves if it is expanded this aggressively.

Dick Seesel
BrainTrust

Expanding Whole Foods’ footprint just to drive Amazon Prime home delivery isn’t a strong enough reason for the move. The physical locations need to have a reason to exist on their own merits as destination stores. Amazon may be right that Whole Foods has plenty of room to grow, but any given location should be profitable in its own right, not just as a glorified warehouse for Prime Now.

Richard Layman
Guest
13 days 18 hours ago

I don’t think they are. They are looking at the intersection of market demographics that support Whole Foods plus market demographics that support Prime. Likely these are metropolitan areas. Likely there is opportunity to extend the Whole Foods store footprint beyond the current business model, when you add in the effect of Prime. E.g., I remember a couple years ago during an earlier round of store closings, reading an article on Macy’s and their decision making — including the impact of store closings on e-commerce sales within various sub-geographies — and reading that physical stores help market online sales, etc.

Shep Hyken
BrainTrust

Expanding into new markets is an opportunity to increase membership in Amazon Prime as well as continue Amazon’s efforts to become even more a part of our culture and society. Amazon continues to set the bar high for other retailers. Some fear Amazon, and rightfully so, as they have put some retailers out of business. However, if a smart retailer learns to compete against Amazon, and many have, the competition is helpful to the consumer.

Mohamed Amer
BrainTrust
Amazon has been a trailblazer in expanding the boundaries of retail while simultaneously establishing higher consumer expectations based on the company’s strengths. In other words, Amazon has never been interested in competing within an existing industry paradigm, rather it sought to create a new paradigm that touches (nearly) everything we do in life. So I expect Amazon to aggressively expand Whole Foods and push hard the Prime Now program. Amazon has two speeds: learning and fast execution. They’ve spent the last two plus years understanding the levers they have in Whole Foods and how consumers (and Prime members) have responded to the acquisition. Convenience measured in saving in consumers’ time and effort across the entire purchase and experience cycle is turning Amazon’s assets into highly-differentiated programs that expand their existing moat. The upshot for the grocery industry and competitors is to realize there is no “end-state” here, this is a race without a finish line and requires not only investments in IT, but a new mindset for leaders, an agile structure and organization, and establishing… Read more »
Ken Morris
BrainTrust
Aggressive expansion of Whole Foods, which has high brand awareness is a good way to establish a physical presence across the U.S. However, there are some drawbacks. Whole Foods primarily appeals to affluent and health conscious shoppers and many consumers have a preconceived perception that they are too expensive. This is a difficult perception to change and I doubt their discount for some items for Prime members and claims of lower prices have done much to change consumers perceptions. Another approach, which is faster than building new Whole Food stores across the nation, would be to acquire another chain that has a physical presence in markets where there are no Whole Foods and develop a new Amazon brand that has a perception of quality and value – similar to the online Amazon brand. I believe this two-pronged strategy is a better way to take advantage of the opportunity. Whole Foods did this originally when they started the company and it’s now back to the future for them. This expansion is absolutely the right approach as… Read more »
Richard Layman
Guest
13 days 17 hours ago

I’m not a Prime member, but go into Whole Foods to buy a particular SKU of coffee and bath soap, and occasionally other specialty items. Because I am on the board of a public food market, I always pay attention to in-store marketing. The special pricing offered to Prime members is significant and could make people want to spend a greater proportion of their food spend at Whole Foods without feeling that it is exorbitant.

(I was just on vacation in Santa Barbara, California, at an Airbnb, and we went to buy groceries at a Vons, not realizing there was a Ralphs just a little further, and it killed me to spend $100 there on a relatively small amount of items. Maybe Whole Foods’ pricing isn’t so far out of line as we think, at least compared to Albertsons banners.)

Mohamed Amer
BrainTrust

And you weren’t too far from Trader Joe’s. Another successful player in the grocery landscape with phenomenal customer loyalty.

Frank Riso
BrainTrust

Whole Foods/Amazon needs to be very aggressive in order to be competitive in the shop-from-home sector of the grocery industry. More Millennials depend on the various combinations for grocery shopping and even going to the store itself. This will continue to grow as a segment of the industry and much like the physical stores the shop-at-home vendors and/or services will become very competitive. I think even the meal preparation services will be a part of the shop-at-home sector in the near future.

Gene Detroyer
BrainTrust

This is the future. It is a business model that matches the desires of shoppers. Amazon’s advantage is that they can meld their technology with Whole Foods assortments. It will be very difficult for other retailers, trying to offer the same service to do it as cost efficiently as Amazon.

Liz Adamson
BrainTrust

Many chains are aggressively investing in grocery delivery and pickup and Amazon is trying to compete. It does seem interesting that Amazon is choosing to invest in this area via a specialty grocery store like Whole Foods. They could easily build more fulfillment centers or add on to existing ones to support Prime Now, however they are likely trying to expand their base beyond current Prime members, adding new members from the additional foot traffic new Whole Foods stores bring in.

Laura Davis-Taylor
BrainTrust

I’ve been reading “The Four” by Scott Galloway and it’s a riveting read that goes deep into Amazon, Apple, Facebook, and Google. One of the many, many takeaways that relates to this is that Amazon doesn’t need to make money from just margin–they really win in the end with data and access. As their tentacles reach into more and more areas of our lives, they get more and more information into their soup pot of data. The data is intimate and highly coveted by brands, which is why Amazon is stealing such massive share regarding search (and other things). So even if they capture a small bit of the larger grocery market, the ability to get deep into more homes and add it to the larger data views of their lives is huge. It’s also not something that competing grocery brands have any ability to do. So, I’m not sure that this kind of expansion is a good thing–at least regarding keeping the power of this ever-expanding platform.

Lee Peterson
BrainTrust

I equate the Whole Foods experience vs. traditional grocers as the difference between having a glass of 18-year-old, single malt scotch vs. some of the regular stuff: once you go there, it’s hard to go back. Many people, most likely non-Whole Foods customers, would say it’s “too expensive” but if you shop smart and you shop 365 brand, there’s not that much of a difference. Besides, what’s more important than what you put in you and your family’s mouths? Not much, if anything.

I’ve always felt that Whole Foods was under-stored. And now, throw home delivery and Prime into the equation and you’ve got the possibility for at least twice as many physical units as you have now. Oh to be a fly on the Kroger board room wall listening to this announcement.

Steve Montgomery
BrainTrust

Whole Foods may not be the “Whole Paycheck” of the past but it is still not a mainstream grocery store. As it expands outward it will find stiff competition from established grocery chains that have survived the ongoing grocery wars making them increasingly tough competition.

These chains are rapidly adding their own BOPIS and delivery options with a much larger product base. Grocery may not be a zero sum game but I expect Amazon will find it harder and harder for Whole Foods to take business away from established grocery chains as it expands. These type of pronouncements by Amazon make for great public relations but I expect they will find the reality more difficult than anticipated.

Kai Clarke
BrainTrust

This is a great position for Amazon to be taking. The more Whole Foods stores there are, the more food stores (read brick-and-mortar) to tie into placing another distribution center in a new location. These are only positives for Amazon, since they already have share of eyeballs and share of market on the front/virtual end. Now they can add a physical tie-in to this on the back end. This only has more positives for Amazon — why not do this?

Jeff Sward
Guest

I am continually reminded that Amazon loathes the status quo. Learning and (r)evolution are at the core of their brand promise. So groceries first, the category with the highest store visit frequency…the most data generated the most often. Then the mall needs a true revolution. So please Amazon, set your sights on the mall. Sears or JCP. Landlords are re-rationalizing the space in an over-sized environment. Amazon can re-rationalize the non-grocery shopping experience.

Michael Decker
BrainTrust

Amazon is all about value and convenience via volume whereas Whole Foods used to be about quality for a price (i.e. “whole paycheck”) — it’s an interesting marriage with Amazon now injecting its “club retail” mantra (Amazon Prime) into a real world setting where quality (albeit expensive quality) has already been established by the Whole Foods brand.

Consumers are excited about receiving quality and value and convenience now that Amazon has taken the reigns of a brand that was far too expensive for most. Amazon must expand Whole Foods quickly in order to get the volume it needs to deliver on these new consumer expectations. Expect the too good to be true delivery prices to raise gradually over time, once they establish their expanded customer base and become a habit.

Sterling Hawkins
BrainTrust

We’ve come full circle on the question of if we’ll need physical retail location in the future. I think the online/in-store/delivery combination is not only smart, but it makes the economics work. Finding channel synergy to increase distribution and reduce costs is what many retailers have been trying to do for years. I don’t think there’s one answer with how to do something like this; however, this certainly seems like a viable one.

Cynthia Holcomb
BrainTrust

The selection of food, particularly fresh food, is uniquely preferential to most shoppers. Most fresh foods require care in storage and transport. No matter how quickly food can be delivered, even at 11:30 pm at night, quality matters, both in taste and appearance, again completely preferential. If a shopper has limited experience shopping and preparing food, preferential expectations of “fresh” food quality are likely less of a factor.

Amazon is betting on huge tradeoffs inspired by digital living. Betting most will pay for semi-automated food selection delivered to their door to avoid the pain of grocery shopping. The grocery industry is wise to offer delivery services to compete with Amazon, and at the same time to keep their identity. Food is life, taste matters, preparation matters, quality matters, factors not highlighted in the 2-hour delivery race.

Mark Heckman
BrainTrust
I mentioned a few weeks back that I thought the idea of Amazon acquiring Target made absolutely no sense given that large foot print stores represent an expense burden that will increase over the coming years as more shoppers split their business between online and bricks stores. As opposed to a big box acquisition, expanding Whole Foods as means to have a presence in both sides of retailing makes better sense given the footprint of Whole Foods is much smaller and the margins a bit higher. However, if this strategy is to have longer term success, Whole Foods must continue to morph into a store that has a broader shopper appeal than it does today. In doing so, Amazon should be prepared to stub their toes a few times as finding the right combination of quality meal solutions and low enough prices to attract critical mass shopping will be a balancing act that could alienate existing Whole Foods shoppers while not appealing to sufficient numbers of traditional grocery shoppers to drive the needed volume. This… Read more »
gordon arnold
Guest

E-commerce is a service retail industry that has positioned itself unfavorably with discount pricing, no tax collection and free delivery. Amazon must be careful to position the expansion stores where service is a higher need than pricing. Brick & mortar retail will continue to evolve and shrink for the foreseeable future, so the need for standalone profitability must yield to 21st century retail methods and accountability.

Amazon leadership does have a clear plan and direction for its future. The companies middle management has few communication tools for bilateral communication needs. If there are no improvements, the path to success might narrow to choke levels.

Craig Sundstrom
Guest

“Wasn’t it the ‘right size’ before?” My cautious self asks; “and if not, why not?” It hardly seems plausible they couldn’t get funding, or lacked name recognition. So one must conclude that either this is a mistake, or WF now has a different mission than before.

I’m hardly in a position to question that decision, but I note that much of their growth (historically) has come from a cult-like following … will the cultists all be on-board with the changes?

Chuck Palmer
BrainTrust
Let’s remember, we’re talking about a segment of a subset of the grocery and retail marketplace. Whole Foods has always differentiated itself in a variety of ways. They emerged as the leader of the “natural” food sub-category based on an aggressive buying strategy, elevating small natural and organic brands, slow growth and distinctive stores that leveraged the best of retail design–architecture and visual merchandising — that elevated shopping and mitigated price sensitivity. There was (still is?) a certain prestige quality to shopping at a store that didn’t look like your local Safeway or Kroger and had a variety of choices of food that were better for you and the environment. This of course is reflected in their real estate strategy — the stores often anchor specialty, upscale centers, not necessarily in relation to the standard grocers. The club-y-ness of Whole Foods aligned nicely with Prime (even though it is essentially a mass proposition now) as a way to test and learn. We also need to remember standard retail metrics and SOPs don’t apply when we… Read more »
wpDiscuz
Braintrust
"Amazon may be right that Whole Foods has plenty of room to grow, but any given location should be profitable in its own right, not just as a glorified warehouse for Prime Now."
"Oh to be a fly on the Kroger board room wall listening to this announcement."
"As opposed to a big box acquisition, expanding Whole Foods as means to have a presence in both sides of retailing makes better sense..."

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