fbpx

The $13.7 billion purchase of Whole Foods by Amazon, the world’s largest e-commerce and cloud computing company, was finalised five years ago. Since then, Amazon has significantly altered the specialty grocer, cutting costs and integrating checkout technology into its more than 500 U.S. stores. 60 additional sites have been added by Amazon, including one “dark store” that is only used for completing online orders. According to data firm Numerator, Whole Foods still still holds just over 1% of the supermarket market, compared to Walmart’s 19% and Kroger’s 9%. For the first time since the company was founded in 1980, Whole Foods has a new CEO starting next week. On September 1, operating head Jason Buechel will take over as the company’s CEO, replacing colourful, divisive co-founder John Mackey, who was previously referred to as a “right-wing hippie.”

It’s pretty impressive that John stayed in a leadership role for as long as he did when there is a culture conflict like the one I believe John Mackey and Amazon experienced, said Jason Goldberg, chief commerce strategy officer at the advertising agency Publicis. I was astonished by it. Buechel assumes leadership of Amazon at a crucial juncture as the company expands its in-person retail presence with a focus on groceries. While internet sales decreased, revenue at its physical stores increased 12% in the second quarter. This is a departure from the previous few years, when Amazon’s physical storefronts underperformed the retail industry as a whole. Amazon recently closed 68 storefronts, including all Amazon Books, 4-star, and Pop Up stores, outside of the food industry. 

Here are some of the key differences in the Whole Foods of today from the company that Amazon acquired in 2017. 

Operational changes and suppliers

Amazon centralised several corporate activities, relocating them from various Whole Foods shops to the company’s Austin, Texas, headquarters. But contrary to what some predicted, it hasn’t evolved into a typical supermarket. According to Whole Foods, the company has added 3,000 local brands in the last five years, a 30% increase from before the Amazon merger, rather than replacing small suppliers with bigger ones.

Teams of full-time “foragers” search for fresh local goods in each location. According to Whole Foods, the concept allows flexibility for smaller manufacturers to stay in a select number of locations rather than needing to supply goods across the board. What brands are sold in which stores is determined in part by Amazon using their data analysis capabilities.

In the same part of Northern California, entering a store in Cupertino is considerably different from entering one in Los Altos or Los Gatos, according to Guru Hariharan, a former manager of Amazon’s software development who now heads the e-commerce management firm CommerceIQ. “The personalisation algorithms are undoubtedly helping them perform better.”

Additionally, there are new accelerator programmes to help regional producers get their products on the shelves of nearby retailers as well as recognised training programmes to turn hundreds of Whole Foods employees into qualified butchers and cheesemongers. Whole Foods claims that several of the hot food bars, free samples, and specialised chef stations that had disappeared during the Covid pandemic have returned.

Whole Foods maintains that it is committed to keeping its products fresh and local as it expands. Whole Foods claims it has increased the number of food items on its list of prohibited ingredients by more than 250 percent since the Amazon purchase. High fructose corn syrup, hydrogenated fats, and artificial sweeteners are all forbidden, and meat must be free of antibiotics and added hormones.

According to Whole Foods, the requirements for canned chicken, eggs, and tuna have also been improved. 2019 saw the elimination of plastic straws and the introduction of new produce bags and rotisserie chicken containers that reduced the use of other plastics.

Although the adjustment hasn’t always been easy for the Whole Foods staff, changes have come rapidly.

The removal of some stock options and “constantly being asked to do more with less resources and now with less compensation,” among other takeover-related complaints, were among the complaints made by a group of Whole Foods employees in an email sent to thousands of coworkers a year after the purchase. Under the massive Retail, Wholesale and Department Store Union, some workers attempted to organise, but those attempts have stopped.

Autonomous shopping

The technology within the doors of stores is the shift that is most obvious to customers.

Customers may now sign up for Amazon One to use their palm print instead of a card or phone to pay. When a device scans your hand, your Amazon account will be charged. More than 20 Whole Foods stores currently carry it, and 65 more will shortly follow suit in California.

Advocates for privacy are speaking up.

People are rightfully anxious about the use of biometrics for payment when it first becomes commonplace, according to Goldberg. Other businesses and event locations are also receiving the palm-scanning technology from Amazon. However, in March, Red Rocks Amphitheatre in Denver pulled out of a partnership when activist groups and artists like Rage Against the Machine expressed worry that Amazon would share customer information with law enforcement.

The palm-scanning gadgets at Whole Foods are a crucial component of another technological advancement that enables checkout-free shopping. Just Walk Out has already been introduced by Amazon at two Whole Foods locations: one in Washington, D.C., and one in Los Angeles.

Amazon refused to grant CNBC an official tour, so we independently evaluated the Washington store. Our every step was captured by hundreds of cameras. According to a colleague, practically everything is weighed using covert scales that can detect when anything as light as a bag of potato chips is taken off the shelf.

We paid with a palm scan and smoothly walked out the Just Walk Out turnstiles. However, the electronic receipt we received hours later was inaccurate and omitted a number of things, most likely because we had momentarily left the closely watched area of the store.

The first iteration of anything, or the “day one experience” as Amazon likes to refer to it, is always going to be flawed and may turn off buyers if it’s truly terrible, according to Goldberg.

Just Walk Out is “very accurate,” according to Amazon, and buyers have 30 days to ask for a refund if the digital receipt contains an error. Concerning privacy issues and the question of whether the corporation sells personal information to consumer goods companies, Amazon stated that any sensitive information is handled in accordance with its long-standing practices, including only providing brands with aggregate, anonymized insights. The recent expansion of Amazon’s data harvesting methods has increased public awareness of the privacy issue. There are millions of online consumers, Alexa gadgets, Ring doorbell cameras, and soon room-mapping robot vacuums in addition to these factors. Ethan Chernofsky, chief data analyst at Placer.ai, a location analytics business, said, “It’s incredibly uncommon that a grocer also has these fantastic digital technology assets that can help it get through more challenging moments.” There is a perception that because of their technological skill, they can spot scalability and profit-maximizing opportunities that perhaps others can’t.

AiFi, one of Amazon’s rivals in the autonomous retail market, has its computer vision system installed in 84 locations, including Aldi in Europe, the Detroit Lions stadium concession stands, 50 of Poland’s biggest convenience stores, and gas station mini-marts in California. According to Joao Diogo Falcao, chief technology officer at AiFi, it encourages clients to make larger purchases.

There is ad hoc proof, according to Falcao, that you purchase more goods since you never check your wallet. “When the store has been operating for a time, we’ve observed 20% basket increases. Additionally, we observe that once a technology has attracted enough clients through sufficient adoption and promotion, it becomes sticky. They return because they like it.”  Amazon is attempting to speed up checkout once more without the use of fingerprints or machine vision. As customers put products in the cart, the Dash Cart keeps track of them and counts them. Currently, the carts can only hold a very modest number of groceries and are unable to be unloaded in the parking lot. The Westford, Massachusetts Whole Foods will soon have the Dash Cart. 

Lowering prices with more private-label goods

Amazon’s dedication to low costs didn’t fit with Whole Foods’ reputation at the time of the acquisition, when the supermarket was sometimes referred to as “whole paycheck” and made fun of for charging $6 for water flavoured with asparagus.

The goal of Amazon, according to a spokesman, was to “make high-quality, organic foods more affordable and accessible for everyone.” Since then, the company has “lowered pricing across aisles at Whole Foods Market and given Prime Membership Discounts and Prime Member Deals in-stores.”

Amazon also began concentrating on selling goods with higher profit margins, which was particularly challenging in the grocery industry.

Goldberg remarked, “You sell a lot of $1 bananas that you pay 99 cents.” “Because of this, earning money requires extreme efficiency. And the majority of the items you sell, if not the majority, are perishable.”

Selling in-house or private-label products is one technique to increase profitability. In 2020, Whole Foods’ 365 private label underwent a brand revamp. According to Whole Foods, 295 new products were added to the 365 line last year, bringing the total to 2,200 today.

Amazon has been gradually beginning to replace many Whole Foods purchases with this private-label brand, which has allowed them to lower pricing, according to Hariharan.

111 private-label brands at least are available on Amazon, according Coresight Research. For home products, they include Amazon Basics and Solimo, and for clothing, Amazon Essentials. Amazon has additionally been charged with abusing its data expertise to unfairly favour its own brand of products.

Moving online orders to ‘dark stores’

Another significant area for Amazon is online grocery ordering. In 2020, the year the pandemic began, Whole Foods said to CNBC that it delivered three times as many online orders as it did in 2019.

Online orders are increasing, but they are typically not profitable, according to Goldberg. “Every supermarket in America is considering going digital. They are attempting to draw in that customer for digital groceries, but they are also considering ways to increase profitability.”

Because more low delivery costs are associated with closeness to customers, this means growth for Whole Foods. According to Whole Foods, it can now serve more than 170 million people in the U.S., Canada, and the U.K. through its 533 global shops.

Additionally, Whole Foods constructed a “dark store” in Brooklyn, New York. It is exclusively devoted to preparing delivery orders and is closed to customers. According to Goldberg, Walmart, Albertsons, and Kroger are also experimenting with the idea by using robots to pick orders and reduce labour expenses.

The year after Amazon acquired Whole Foods, Instacart’s exclusive agreement to fulfil online orders ceased. The majority of those gig workers have now been converted by Amazon into legitimate Whole Foods employees. The area of the store where Amazon online customers can pick up packages and drop off returns—often without a box—is under the watchful eye of other personnel. 

The Whole Foods scorecard

Because Amazon includes the revenue from its 25 smaller Amazon Go locations, 60 Amazon Fresh grocery stores, an Amazon Style clothes store, and 60 Whole Foods stores under the category of physical stores, it is challenging to assess the performance of the Whole Foods acquisition. However, Whole Foods is by far the group’s largest individual contribution.

Things appeared a little gloomy earlier this year. Six Whole Foods locations will close after Amazon’s first-quarter earnings results fell short of expectations, the firm revealed.

Whole Foods is seeing signs of revival as customers resume doing their shopping in-store. According to Placer.ai, the number of trips to Whole Foods are currently circling around the same level as in July 2017, just before Amazon took ownership.

Whole Foods was one of the grocery stores that was hardest hit by the epidemic, and its recovery trend hasn’t been as strong as some others, according to Chernofsky. He continued, “It really is right-sizing, and it’s a push towards optimization,” in reference to the six Whole Foods closures.

Amazon has added seven new Amazon Fresh stores after the other retailers closed their doors in April. Amazon Fresh is a more established grocer with 41 locations in the U.S. and 19 in the U.K. Additionally, Whole Foods informed CNBC that it would soon open 50 new stores in areas with high rates of population growth.

“You have the possibility for this three-pronged approach to attack grocery,” Chernofsky said, adding that Whole Foods will probably continue to be a more upscale retailer while describing Amazon Go as the ideal urban quick in-and-out opportunity. “That mixture might be really powerful.”

Leave a comment