Who Is Amazon's Interest In Whole Foods?

Grocery shopping is more diversified and evolved than ever before. Individuals across the nation have access to everything from exotic products to unique delivery services. Often, specialty stores have limited locations whereas specialty services have a limited reach. However, two retailers have expanded to hundreds of locations while adhering to unexpected market positioning for previously untargeted market segments. Whole Foods Market and Trader Joe’s have become household names while also innovating beyond regional and national traditional chains. Despite comparable size in

Whole Foods, just like any other retailer right now, has been struggling with the economy. The external environment has been changing in uphill and downhill motions daily, something that Whole Foods has never experienced before. Not only is there pressure on the financials of the corporation, but also there is the pressure to go green.

In the article, “Amazon Cuts Whole Foods Prices as Much as 43% on First Day” informs the reader about Amazon’s errancy to be at the top of the grocery store industry. On their first day of ownership, after buying Whole Foods, they cut their prices up to 43%. According to Jennifer Kaplan and Matthew Boyle, “Cutting prices at the chain with such an entrenched reputation for high cost that its nickname is Whole Paycheck is a sign that Amazon is serious about taking on competitors such as Wal-Mart Stores Inc., Kroger Co. and Costco Wholesale Corp.” (2017). The fact that Whole Foods sells all organic is a plus for them but and not so much help for their competitors since customers are able to buy healthier food at lower prices. This is just the

Luckily for Amazon.com, this company is one the largest retail sellers in the online world. Amazon is a company with a single enterprise that has risen to the top of the Most Innovative Companies List. It has been increased to this fortitude due to this company’s innovative ideas and the ideas for growth for their consumers as well. As technology had changed, so did Amazon by offering Prime which was a membership that could be purchased to allow the consumer to acquire items faster and receive the products more quickly.

The grocery industry is highly fragmented, with a multitude of strong regional players (Safeway, Publix, Kroeger, Wegmans, etc.). The largest grocery retailer in the United States is Wal-Mart, with an estimated 33% share. Other major retailers are targeting this segment of the industry, focused on a relatively narrow selection of key commodity foods at relatively low prices (Forbes, 2011). Whole Foods competes in a segment occupied by differentiated grocery players including Trader Joe's, Fresh Market and a highly fragmented selection of local and regional upscale and health-conscious grocery stores. The big players in the industry usually carry ranges of organic and natural products as well, siphoning off some business from Whole Foods. As Whole Foods grows, it comes into competition with mainstream grocery retailers more frequently (McLaughlin & Martin, 2009).

While the foods retail industry is highly competitive, Whole Foods has established a reputation and maintains a brand loyalty with its customers. Increased rivalry will occur in the larger grocery chains like Wal-Mart and Kroger, because of their flexibility in the products they can offer, and the pressures they can put on the sales growth and overall profits of Whole Foods. They have a larger cash and customer base, and the ability to better advertise their products, while Whole Foods still generates most of their

Whole Foods Market Inc. has developed into one of the most prominent supermarket chains that only market foods without artificial preservatives, colors, flavors and etc. Starting in 1978 as a small vegetarian store and now has developed into a $13.7 billion that has just recently been bought by Amazon. Whole Foods started the efforts in the grocery industry to base its food based on healthy living. This calls for food products to be sourced responsibly and call on innovative solutions that can improve Whole Foods environmental footprint. By doing so the company provides a strong contribution to the communities it does business in. While there is no argument to the accomplishments of Whole Foods, the company has not been free of criticisms. For example, the company has been accused of placing local stores out of business which has resulted in mixed responses from some of its customers. Some other ethical issues also include the questionable activity by CEO John Mackey and an antitrust investigation. This analysis will provide a background on the ethical dilemma Whole Foods had to undergo.

Marketed as ‘America’s healthiest grocery store’ the company has successfully grown to 408 stores across the world with sales of $14 billion in 2014 (Whole Foods Market, 2015). The firm is positioned as an upmarket grocery due to the emphasis on natural, organic origins, and as a result are able to charge a premium for their products. Through efficiently running its operations and stores, Whole Foods are able to maintain healthy 4.02% profit margins (Financial Times, 2015) and operating margins well above the American grocery store industry average at 6.58% (Bloomberg, 2015). Looking at 2015’s quarter 1 figures it is clear to see that Whole Foods have had a hugely successful year with sales of $4.7 billion, up 10% from the same period last year. Furthermore, they opened 9 new stores and have signed a further 11 new leases.

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From reading the article I understood that since there is a lot of competition in the grocery industry the margins are low so the making of a grocery store to emerge can take long. If Amazon were to come up with a grocery store from scratch it would take long, merging with Wholefoods puts Amazon at a national level competitor. Another advantage, with the grocery stores already built and running Wholefoods, has many stores and at upscale locations. Amazon doesn’t have to worry about finding store locations. To take advantage of this, some customers who do not live near these upscale locations, Amazon can deliver which makes it convenient for every customer.

Retailers have adapted to the online marketplace out of necessity and opportunity. The great recession placed many retail companies in financial hardship and while some failed, others innovated and became some of the largest companies in America such as Amazon. A recent trend is consumers are buying more products online than ever before. As a consumer, I enjoy shopping in the convenience of my home and having the items delivered to my doorstep in 48 hours or less. Global internet access continues to increase, with mobile devices and affordable internet for the home, consumers will continue to shift and buy products online rather than in retail brick and mortar locations. Online sales in the United States have increased over 250% in the last ten years, accomplishing $250.0 billion in 2012 (Tehrani, 2014). Therefore, Amazon is in a solid market position to capitalize on the future trends and booming ecommerce

Amazon.com is a Fortune 500 company that has revolutionized the retail industry. In recent years, Amazon has faced increased competition in the highly competitive online retail space as competitors invested heavily in their online storefronts and infrastructure. Positioned in a highly fragmented industry, Amazon must find solutions that can sustain its long term profitability and maintain its market share. To that end, Amazon should grow the Amazon Prime membership base and expand on its media and mobile offerings.

The board of directors from Amazon.com is likely to take an approach of nominal participation with their executives. Whole Foods is a new acquisition for Amazon.com, but one that was already having great success. Bezos emplaced a company man at the helm of Amazon.com to make sure that the larger company interest was observed, and should to allow leading the way as a manufacturer and designer of an exceptional product.

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