Five years of Whole Foods: a look back at Amazon’s rocky marriage

Five years of Whole Foods: a look back at Amazon's rocky marriage

On September 20, 2017, Amazon and Whole Foods Market announced that the two companies would be merging, with Amazon purchasing Whole Foods Market for $13.7 billion in an all-cash deal. The story of the acquisition is actually a bit of a rocky marriage; back in 2013, Amazon was interested in buying Whole Foods Market, but John Mackey, CEO of Whole Foods Market at the time, turned down their offer because he thought Amazon would destroy their organic and local reputation.

Back when it started

Some experts say Amazon overpaid for Whole Foods, but the company’s rocky marriage with the grocery store chain has helped bolster Amazon’s image as an innovator.

Whole Foods became known for its giant, sometimes cheaper bulk sections that were unheard of in most grocery stores, or even warehouses at the time. And while it was only online shoppers who first benefited from these now popular deals like buy-one-get-one-free on groceries, membership has gone up at their brick-and-mortar locations thanks to all those Amazon Prime deliveries.

In addition to lowering prices for some items, like certain products and wines, and adding more digital options, Whole Foods stores also increased its private label products. In fact, Bloomberg reports that more than 50% of 365 brand products have been launched since 2017. At the same time, Amazon has worked to keep prices low by offering coupons through Prime. For example, shoppers can get $10 off an order of $100 or more on select sale items.

Critics say it’s not always working out: But some experts say that while these changes are good for customers and definitely help bolster Amazon’s image as an innovator in grocery delivery services, they don’t actually give people much incentive to shop there.

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What did we think?

When Amazon bought Whole Foods for $13.7 billion in 2017, people thought it was the ultimate validation for the booming food delivery and grocery business. But the acquisition has been riddled with problems, which Amazon only made worse through its actions. Rumors swirled about staff cuts at the grocer; Amazon Prime Day caused inflated prices on items such as avocados and lobster; customer reviews slotted customer service at 2-stars. The rocky marriage began to fall apart with contentious divorces, like when Costco quit selling certain groceries after an abrupt price hike, or when Albertsons sued Amazon for overcharging more for deliveries than competitors were.

The acquisition appeared to be set in stone with Jeff Bezos himself calling it an amazing business and describing what he loves about it. That didn’t seem to last long as behind-the-scenes problems had already begun to bubble up. This was probably due in part to internal fighting between tech talent and more experienced executives, which is inevitable when these two different types of people meet. A lack of business knowledge on Amazon’s part may have also contributed to making strategic mistakes that made matters worse.

What happened next?

Amazon’s relationship with Whole Foods has been rocky since the acquisition. Amazon didn’t anticipate how much time and resources it would take to establish a partnership between two companies that operate so differently. They also underestimated the pressure they’d face from competitors and their investors, who all want the best for Amazon but want to see an ROI on their investment as well.

In order to make some progress on integrating these different companies, Amazon needs to prioritize developing better brand-level integration with Whole Foods while at the same time establishing greater inventory discipline in its physical retail stores. Additionally, Amazon will need to improve food quality through partnerships with brands that better represent what customers are looking for or invest in new food processing capabilities themselves.

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Where do we go from here?

Now, Amazon’s acquisition seems like a foregone conclusion to some. But the fact is that it was an ambitious move at the time. It’s unclear how Amazon will leverage Whole Foods’ physical assets going forward and the integration has not been without its setbacks. Now, five years later, it looks as if Amazon may be in for another rocky marriage…

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