Here's how much people are saving on average since Amazon's takeover.
Retail experts at Gordon Haskett Research priced a basket of 108 grocery staples worth $400 at Whole Foods at the end of August 2018—exactly one year after they did a price check for first time post-Amazon buyout. They found that the price of the groceries was reduced by just $1.50 from the previous year, despite new discounts offered to Prime members and Amazon cardholders.
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The Gordon Haskett team also tested prices at Whole Foods in September 2017, November 2017, and March 2018—but the team of analysts said that prices remained mostly unchanged between these tests.
“While deeper promotional pricing on key items, incremental savings… and increased convenience for Prime Members in the first year under Amazon ownership have caught our eye as consumers, the reality is that Whole Foods pricing on a broad basket has remained largely unchanged,” the Gordon Haskett writes in their report, MarketWatch reports.
What kinds of groceries were they testing? Items in the grocery cart included Whole Foods' 365 creamy peanut butter, balsamic vinaigrette, and various private-label ice creams. The tests also included a few brand name products, such as Cheerios cereal, Nature's Path buckwheat waffles, and Amy's better-for-you breakfast tofu wraps.
Looking to save at Whole Foods? Read on:
Compared with earlier tests in March, Gordon Haskett found higher prices on 19 different items on the basket, whereas only 11 items had lower prices in August. Overall, though, prices have remained stagnant—78 different groceries remained at the same price. You may be even more disappointed to hear that, over the various tests, there were fewer and fewer "on sale" items included.
You're more likely to see attractive discounts and sales during holidays and special occasions, like antibiotic-free turkeys around Thanksgiving, the team found.
There are many factors that could affect prices, including inflation and higher fuel costs, the analysts said. However, Amazon, who distinctly made claims that they would lower costs after purchasing the grocery chain, has seemingly focused on new features rather than actually lowering prices. And whether it's due to prices or other factors, many loyal fans have complained that Amazon's takeover hasn't turned out the way they'd hoped.
When Does Amazon Become a Monopoly?
The behemoth’s acquisition of Whole Foods is making some wonder whether the firm is just too big.
On Friday morning, Amazon announced it was buying Whole Foods Market for more than $13 billion. About an hour later, Amazon’s stock had risen by about 3 percent, adding $14 billion to its value.
Amazon basically bought the country’s sixth-largest grocery store for free.
As the financial reporter Ben Walsh pointed out on Twitter, this is the opposite of what’s supposed to happen—normally, the acquiring company’s share price falls after a major purchase—and it suggests that investors now believe something odd is going on with Amazon. What could it be?
From a straightforward standpoint, the Whole Foods acquisition means that Amazon will now participate in the $700 billion grocery-store business. Jeff Bezos, the company’s president and CEO, has made grabs at that market for several years—launching Amazon Fresh, a food home-delivery service, and opening several Amazon-branded bodegas in Seattle. Now he owns one of the industry’s best-known brand names.
But Amazon paid a premium to buy Whole Foods, so its new full entry into another industry doesn’t quite explain the rise. Instead, the boost in share price suggests something more ominous: An incredible amount of economic power is now concentrated in Amazon, Inc., and investors now believe it is stifling competition in the retail sector and the broader American economy.
As the country’s biggest online retailer of cleaning supplies and home goods, Amazon competes with Walmart, Target, and Bed, Bath & Beyond. As a clothing and shoe retailer, it competes with DSW, Foot Locker, and Gap. As a distributor of music, books, and television, it competes with Apple, Netflix, and HBO. In the past decade, Amazon has also purchased the web’s biggest independent online shoe store, its biggest independent online diaper store, and its biggest independent online comics store.
And it is successful on nearly all of those fronts. Last year, Amazon sold six times as much online as Walmart, Target, Best Buy, Nordstrom, Home Depot, Macy’s, Kohl’s, and Costco did combined. Amazon also generated 30 percent of all U.S. retail sales growth, online or offline.
Yet Amazon’s dominance extends far beyond retail. It also lends credit, publishes books, designs clothing, and manufactures hardware. Three years ago, it bought Twitch.com, a central player in the $1-billion business of e-sports. And on top of all this, it operates Amazon Web Services, a $12-billion business that rents servers, bandwidth, and computing power to other companies. Slack, Netflix, Dropbox, Tumblr, Pinterest, and the federal government all use Amazon Web Services.
It is, in short, an Everything Store: not only selling goods but also producing them, not only distributing media from its servers but also renting them out to others. And it’s left many experts and analysts wondering: When does Amazon become a a monopoly?
“I think of Amazon as serving almost as the essential infrastructure for the American economy at this point, when it comes to commerce. And that affords Amazon a lot of power and control,” says Lina Khan, a fellow on the Open Markets team at New America, a center-left think tank.
In January, Khan called for Amazon to receive more antitrust scrutiny in an article in The Yale Law Journal.
Historically, many of Amazon’s critics have focused on their Marketplace feature, which allows small businesses to sell their goods through Amazon’s website. Some merchants have accused Amazon of secretly using Marketplace as a laboratory: After collecting data on which products do best, it introduces low-price competitors available through its flagship service.
The Institute for Local Self-Reliance, a nonpartisan advocacy group, has also criticized Amazon for this alleged anticompetitive behavior. “By controlling this critical infrastructure, Amazon both competes with other companies and sets the terms by which these same rivals can reach the market. Locally owned retailers and independent manufacturers have been among the hardest hit,” said a recent report from the group.
But as Amazon has grown across the economy, concern has grown about its strength and power more broadly. “Amazon introduced itself to consumers as a middle man for books,” Khan told me. “But it expanded into becoming a middle man for all sorts of other things—and, for some time now, it has expanded well beyond that middle-man role. As it distributes more content and produces more goods, it’s running into more and more conflicts of interest.”
In short, people have begun to wonder if Amazon is just too big: a company that already controls too much of online retail and that has started to exert its dominance downward into the rest of the supply chain.
Amazon has historically declined to comment about antitrust issues. It recently began searching for a professional economist to consult on competition law concerns. Before November, one of the loudest critics of its market dominance was Donald Trump, who implied on the campaign trail that Jeff Bezos faces “antitrust problems.”
Trump has not yet appointed someone to chair the Federal Trade Commission. The commission must review the acquisition before its completion.
When the United States began to enforce for fairer competition between businesses in the early 20th century, it focused on two kinds of monopolistic organizations: horizontal monopolies and vertical monopolies. In the steel business, for instance, a horizontal monopoly buys up a lot of steel mills, such that other competitors would be boxed out. A vertical monopoly buys up and down the supply chain—acquiring barges and trains and coal mines—essentially barring other companies from competing with it.
Through the middle of the century, regulators focused on business arrangements that could use their control of markets to inflate prices for consumers—cracking down on cartels and more informal price-fixing or market-controlling arrangements—and also on trusts and firms that exercised monopolistic control over their industries.
Starting in the late 1970s, though, legal scholars began arguing that monopolistic behavior could only be measured if it raised prices for consumers. Regulators and judges took notice and opted to pay less attention to overall market structure. And inspired by the corporate raiding and hostile takeovers of the early 1980s, many experts came to believe that bigness in the market would always fix itself.
That consensus has come under attack in the past decade, partly thanks to companies like Amazon. During its first 10 years in operation, Amazon rarely returned profits, and investors allowed Bezos to continue invest in infrastructure and market share. The end result is today’s Amazon: a behemoth company that returns a meager profit, with a stock worth nearly 200 times as much as it earns.
Khan and others have called for the focus to be less on Amazon’s prices and more on its economic power. “Nobody would quibble that Amazon in its current form today is great for consumers. The question is what do things look like going forward?” she asked.
“Americans love to think about their economy as open and competitive,” she said. “But when a growing share of the economy is contained by Amazon, it’s a form of centralization. Owning your own business used to be a way for Americans to build assets and pass on wealth inter-generationally. But if you look at any sector where Amazon is a dominant player—you’d be somewhat crazy to enter there.”
This effect has been true even of large startups. Jet.com opened early last year as a Sam’s Club-style competitor to Amazon, attracting millions in venture capital and plenty of press coverage. And while it grew quickly, it did not last long as an independent company. Walmart bought Jet.com for $3 billion last August.
In the near term, the Whole Foods purchase worries some analysts most because it immediately gives Amazon another infrastructural advantage: more than 400 small warehouses, spread out across some of the most affluent (and Amazon-using) neighborhoods in the United States. They fret that Amazon’s logistical advantages—its network of warehouses, delivery routes, and cargo jets across North America—have given it an unbeatable advantage over other firms. And they argue that advantage was spawned not by technological innovation but by an unending stream of money from Wall Street.
These critics are calling for Amazon to receive a kind of scrutiny now rare in the United States. First, they say, the Securities and Exchange Commission should think hard before approving its purchase of Whole Foods. Second, politicians and regulators should look harder at its structure. They should ask themselves whether its integration is worth its cost—and then either restrict its integrate, essentially breaking Amazon up or regulating and neutralizing its consolidation.
I asked Khan if she was really thinking about breaking up Amazon. “People have been timid and think that’s an extreme response,” she said. “But I think it’s worth noting that Amazon is expanding in an unprecedented way across our economy.”
She called back to its spiky share price this morning. “Investors know it’s monopolistic,” she told me. “That’s why it’s stock price has been so untethered from profits. The market can register a reality that our laws cannot.”
Amazon shouldn't buy AMC
Let's get the bearish argument out of the way first. We can start with price. AMC had an enterprise value of $10.6 billion in May of last year when the last story was making the rounds. AMC's fundamentals have only gotten worse, but its enterprise value has ballooned up to $13 billion -- and likely closer to $15 billion by the time all of the latest stock sales and debt moves are on the books. If price was an issue for Amazon before it would make even less sense to pursue a transaction now.
AMC has lost leverage with Hollywood over the past year. Movie studios are dictating the terms of release windows, and folks haven't been flocking back to the local multiplex since it reopened late last summer.
There's also an argument to be made that Amazon doesn't need AMC if it wants some skin in this game. It can have AMC rival Regal and its presently shuttered multiplexes for what is likely pennies on the AMC dollar. Amazon considering the purchase of the 53-unit Landmark three years ago suggests that it's not just gunning for the largest player here.
There's also the risk here that Amazon stock takes a hit on an AMC purchase. The market was also confused by the $13.7 billion Whole Foods purchase, but at least that was a top dog in a growing niche. Whole Foods is aspirational. AMC is, well, AMC.
Amazing! Whole Foods will now let you order online and have everything delivered straight to your home! The only thing is, this isn't new. I admit that I had no idea it was a thing, and I will bet that I'm not alone.
For quite some time, you've been able to shop online and get Whole Foods products delivered.
Caveat: Those lower prices I mentioned? At least some of them haven't yet made it to the online interface. The same $1.49 Haas avocados I could have bought in the store were still going for $2.99 each online. And the organic Gala apples cost $3.29 a pound online.
Unsurprising, I suppose, but there are now big displays of Amazon Echos and Amazon Echo Dots, for $99.99 and $49.99 respectively, right there in the produce section.
Amazon to buy Whole Foods for $13.7 billion, wielding online might in brick-and-mortar world
(Reuters) - Amazon.com Inc said on Friday it would buy Whole Foods Market Inc for $13.7 billion, in an embrace of brick-and-mortar stores that could turn the high-end grocer into a mass-market merchant and upend the already struggling U.S. retail industry.
Amazon used aggressive pricing to become an e-commerce retail juggernaut and has recently been experimenting with brick-and-mortar outlets. It will take over a natural and organic grocer pioneer with 456 stores, a mecca for young, high-end shoppers, that has been struggling to rein in prices and integrate technology.
The deal represents a dramatic turn in strategy for Amazon, which has offered food delivery through its Fresh service for a decade but has not made a major dent in the $700 billion grocery market.
“The ramifications for all of retail are seismic – not just retailers that sell grocery, but for everyone,” Gordon Haskett analyst Chuck Grom said.
For graphic - Whole Foods at a glance - click: tmsnrt.rs/2skJDSv
Shares of dozens of supermarkets, food producers, payment processors and shopping malls collectively lost at least $35 billion in U.S. market value on Friday as the news reverberated across financial markets.
Shares of grocer Kroger Co swooned 9.2 percent, while Wal-Mart Stores Inc fell 4.7 percent, signaling fears that Amazon could broaden Whole Foods’ product mix and cut prices.
Amazon’s shares rose 2.4 percent to $987.71, adding $11 billion to its market capitalization, which in one sense makes the acquisition nearly free for Amazon shareholders.
“Supermarkets will now have to contend with not only competition with each other and non-traditional grocers like Wal-Mart Stores Inc and Target Corp, but with a retailer like Amazon which has the financial capacity to price aggressively,” said Mickey Chadha, vice president and senior credit officer at Moody’s Investors Service.
Getting Your Product on Shelves at Whole Foods Just Got Harder
Whole Foods, whose stores can carry as many as 55,000 products, is looking to sell the exploding number of natural and organic products more profitably. Shown, a Whole Foods store in New York City.
Whole Foods, which cut prices last year to make it cheaper to shop there, now is making it more expensive for suppliers to get their products onto shelves.
The supermarket chain owned by Amazon.com Inc. AMZN -0.02% is asking suppliers of all sizes to pay new rates for prime shelf space as it tries to boost profits and better organize the exploding number of natural and organic products hitting the market.
Many suppliers will see an increase from the average $25,000 fee companies were paying to be featured in the stores’ most-visible, high-traffic areas. Additionally, Whole Foods is pitching its biggest suppliers on a promotion costing up to $300,000 for several weeks of prime shelf space along with souped-up marketing, executives say.
Sales of natural and organic products are growing faster at conventional retailers than at ‘natural foods’ and gourmet markets.
U.S. natural/organic sales by type of retailer
Note: Includes food and other products
The chain also is asking suppliers to offer bigger discounts on their products to earn the space. A high-visibility nationwide promotion at Whole Foods now often requires companies to cut product prices by at least 25%. Previously, large suppliers could more often do regional promotions that didn’t require prices to be cut so sharply.
Whole Foods officials had been plotting the changes and set the early stages in motion before the chain’s acquisition by Amazon in August, but technology is helping to drive them. Whole Foods last updated its rates for prime space nine years ago, officials at the retailer say, and its promotional fees were a bargain compared with competitors’. Whole Foods now gets guidance on prices and sales trends from Nielsen data, which competitors have mined for years.
The natural-food chain developed its cachet by carrying the newest, niche brands without being able to pinpoint whether they drove sales. During special promotions, though, sometimes stores in an entire geographic region wouldn’t stock special displays or discount promoted items, Whole Foods executives and many manufacturers said.
More on Amazon
“That’s what suppliers used to be very frustrated with, and rightly so,” said Jamie Brent, senior director of sales for Whole Foods at the Hain Celestial Group, whose brands—including Arrowhead Mills and Terra Chips—face new competition from natural and organic upstarts..
Now, Whole Foods executives say, they are adopting a suite of retailing tactics meant to enhance profitability, including centralized purchasing decisions, tighter control over inventory and working with a national contractor to do in-store sampling and demonstrations.
According to a letter Whole Foods sent to some suppliers in December, vendors selling an annual $300,000 in products in stores will be required to pay a fee each time their products are reorganized on shelves or added to new stores, starting in April. Grocery suppliers will pay a fee of 3% of the cost of goods delivered, and beauty suppliers will pay 5%.
Whole Foods has hired an outside company to stock shelves “to provide a much more effective result,” the letter said. “To successfully run this program, we need your financial support.”
Melody Pate, founder of Kitchen28, a specialty snack company in Holden, La., removed excess salt from Those Nuts! glazed pecans at the family-owned business on Jan. 25.
Whole Foods began the various efforts two years ago after its sales slumped and has accelerated them in the face of activist investors last year. The grocer also faces growing competition. Conventional supermarkets’ sales of natural and organic products have outpaced growth at natural-food stores for more than two years, according to specialty retail data firm SPINS Inc.
Amazon, which bought Whole Foods last summer, expects the operational changes to continue, according to Whole Foods executives. An Amazon spokeswoman didn't reply to a request for comment.
Some suppliers say the changes were rushed and confusing and have made it harder for upstart brands to get space. “Our dreams of going national are going to be far more difficult,” said Alberta Pate, manager of Kitchen28 LLC, a Holden, La. producer of glazed pecans. She said the company at present isn’t able to expand to additional Whole Foods stores because of tighter management of shelf-space.
Alberta Pate, manager of Kitchen28, the family-owned maker of Those Nuts! snacks, said, ‘Our dreams of going national are going to be far more difficult.’
Ms. Pate, whose daughter, Melody Pate, is a chef and co-founder of the company, said they love selling at Whole Foods but have started pitching their pecans to other gourmet retailers. “We made a mistake in putting all of our eggs in one basket,” Ms. Pate said.
Rivals are seeking to capitalize on the adjustment period.
Robert Clark, senior vice president of merchandising for Kroger Co. , said: “We definitely don’t have a fee menu that would be a barrier to entry.” Kroger, the largest U.S. supermarket chain, has been courting niche brands over the past year with a new portal for local suppliers and a series of natural-foods trade fairs. The company doesn’t charge shelving fees for small suppliers, Mr. Clark said.
Robert Mock, co-founder of Ocean’s Halo seaweed snacks, said the brand is launching an exclusive new line with Walmart Inc. this spring after the retailer took pains to work with him on production and pricing. “Walmart has treated us like a partner,” he said.
Whole Foods executives say they haven’t seen suppliers defect because of the higher fees and stricter requirements. “We knew full-well that there would be discontent,” said Don Clark, Whole Foods’ global vice president of nonperishable procurement and a former Target Corp. executive.
Some suppliers say the changes at Whole Foods are overdue. Hain’s Mr. Brent said product displays recently have been handled with more uniformity and Hain intends to pay for the enhanced promotions at the stores.
Eric Newman, vice president of sales for Organic Valley, the largest U.S. organic farmer cooperative, said: “Are they having challenges? Sure. Will it result in a more competitive Whole Foods? Yes.”
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'They want us to be robots': Whole Foods workers fear Amazon's changes
Whole Foods staff are worried that Amazon, the grocery chain’s new owner, is trying to turn them into “robots” and are seeking to set up a union to protect their jobs.
Workers at “America’s healthiest grocery store” say management is trying to cut jobs and reduce wages as they reshape the 38-year-old grocery chain in Amazon’s image.
“No one trusts Amazon and there are fears in upper management that Amazon will clean house if sales rates aren’t hit,” said one of the founders of the Whole Worker community in an interview. Staff are reluctant to speak on the record for fear of retaliation and the company has recently started training managers to fight back against union organization.
“They’re squeezing all they can out of the workers. Amazon gives little notice whenever they make changes. When they rolled in the Amazon Prime discount, they only gave stores ten to fourteen days of notice and no extra labor to handle the extra work.”
Whole Foods workers across the United States are beginning to collectively organize in an attempt to push back on changes made to the supermarket chain operations since Amazon acquired the company in August 2017.
On 6 September, a group of workers sent out a letter to Whole Foods stores across the country reaching out to fellow employees to discuss concerns with how Amazon has changed the company as part of the Whole Worker community.
They cited the “order-to-shelf system”, which began three years ago and has accelerated under Amazon, and mass layoffs of certain positions as some of the primary reasons Whole Foods workers are now coordinating efforts to unionize.
Fruit displayed at a Whole Foods store in New York. Photograph: Brendan Mcdermid/Reuters
The order-to-shelf system is a strict set of procedures for employees to follow that uses scorecards to prescribe specific ways to store, display, purchase items on store shelves and in stock rooms.
“The OTS system really aligns with Amazon’s core practices. It’s to make everyone interchangeable,” said a Whole Foods employee in the New England area involved in labor organizing. “They want us to become robots. That’s where they are going, they want to set it up so they don’t have to pay someone $15 an hour who knows all about the food, they can pay someone $10 an hour to do these small tasks and timed duties.”
Whole Foods has a history of union busting even before Amazon acquired the company.
In May 2016, Whole Foods paid the union-busting consulting firm Kulture Consulting more than $100,000 days before a union election for a distribution center in Pompano Beach, Florida.
In 2017, the National Labor Relations Board ruled against Whole Foods for union busting tactics, as they amended the employee handbook to ban recording of all work related activities without management approval, an infringement on collective bargaining rights and labor law.
“We want a return to where we were a few years ago,” added the New England area-based Whole Foods employee. “Store teams used to make more. We had much better pay and were taking more money on our paychecks than we were making from our hourly wage when the company was successful, when it wasn’t self cannibalizing, when everybody had the tools to do their job.”
The employee explained that under Amazon, Whole Foods workers are expected to do more with restricted labor budgets and often perform duties above their rank without being properly compensated. In addition, his region’s capital expenditure budget has been frozen. “We just got bought by the second trillion-dollar company in the world and we don’t have money to replace refrigeration units.” Amazon recently followed Apple to become the second company ever to be valued at over $1tn.
Another New England area based Whole Foods employee told the Guardian that despite drastic differences in store traffic and sales between August, when customers are on vacation, and September, when children go back to school, his labor budget only increased by $300 despite a projected increase in daily sales of $100,000. “We’re left to try to figure out how to do the impossible on shifts with not enough people to work,” the employee said. “It’s not the same place it was a year ago.”
A Whole Foods employee in Southern California said the culture at Whole Foods had changed as upper management has focused on maximizing profit and homogenizing stores. “Local and speciality products have been cut and replaced with more conventional mainstream ones, and regional marketing and sign making has been removed,” they said. “We are losing the shopper and team members who helped make us who we were.”
A customer shops for produce at a Whole Foods Market in Oakland, California. Photograph: Bloomberg/Bloomberg via Getty Images
Under Amazon’s ownership, profit-sharing for employees – once a major perk of working for the company – has reportedly been eliminated. “Jeff Bezos should not have earned $150bn while the majority of his workers live paycheck to paycheck and do not receive profit sharing,” stated the letter sent out to Whole Foods employees by the Whole Worker community. “The clandestine nature of Amazon offering stock options to store leadership without informing TMs (team members) is beyond problematic. It is insulting and unethical.”
Whole Foods has also gradually eliminated or drastically reduced classes of jobs, such as in-store graphic designers and payroll benefits specialists, and merged those duties into other positions without providing workers additional compensation. In a previous statement made in March 2018, Whole Foods said the cuts were made to support business needs.
“We work for the wealthiest man in the world and our stores can’t afford to hire. If you actually want to build sales and increase market share, you need to spend the money to get it done,” said a Whole Foods employee based in Illinois who helps coordinate the Whole Worker community. “Corporations keep getting tax incentives, but when you don’t raise wages and you need two jobs just to make a living, what’s the point? We’re not getting anywhere as a society.”
The employee added the short staffing and reduction in labor has fostered an environment at Whole Foods where employees are struggling to complete all their assigned duties, and unable to take the time required for customer service throughout the work day. “Even stopping to help somebody feels like a burden and it shouldn’t be that way.”
Get ready. Amazon-Whole Foods deal will change how you buy food forever
Amazon is buying Whole Foods Market for 13.7 billion dollars. We talk to shoppers about the deal.
The Amazon-Whole Foods deal is expected to lead to lower prices and other changes across the industry. (Photo: Eric Gay, AP)
Amazon to buy Whole Foods Market for $13.7 billion
Whole Foods Market's sales continue to fall
Correction: In an earlier version of this story, Rafael Romero, vice president of CREC’s retail division, was given an incorrect title.
For anyone in the business of selling, supplying or hauling groceries: Things just got real.
Amazon.com's $13.7 billion purchase of Whole Foods instantly makes it a major player in the U.S. grocery industry and that leaves a lot for shoppers, retailers and other companies involved in the industry to chew on.
The online seller is bringing its firepower to a grocery industry plagued by razor-thin profit margins. The move could slice into profits for food manufacturers, other supermarket chains such as the nation's largest by market share, Kroger, and behemoths like Walmart, which is currently the biggest seller of groceries in the U.S. with more than one-quarter of the market, according to Euromonitor. It also potentially creates a challenge for companies that deliver groceries such as Fresh Direct and Peapod, and ready-to-cook ingredients and recipes to customers' doors, like Blue Apron and Sun Basket.
“Once Amazon is a player in the industry, anything can go,” said Joe Agnese, senior food retailing analyst at CFRA. “The big threat is what else they can do. Now that they have a retail presence with (more than) 400 stores, long-term they can expand on that threat. They can (bring) pricing pressure. They could bring down prices and everyone would have to match them or lose share."
For years, Amazon has burst into new areas of business introducing the ease and efficiency of shopping online by bringing books, electronics, clothes, household items and some food items, often at low prices, to shoppers' front doors. The value, convenience and the ability to easily comparison shop online hastened the demise of both smaller shops and many big household names. Remember bromook superstore Borders? Electronics chain Circuit City?
The broader retail industry's tailspin has only deepened with Amazon taking a big share of the blame. Once stalwarts of the industry, Sears, J.C. Penney and Macy's are closing hundreds of stores. Mall favorites like The Limited and Gymboree have filed for bankruptcy protection. Now, traditional grocers could face a similar fate.
►A wave of merger and acquisition activity may be on the way as companies seek scale. Amazon may, itself, be the acquirer. “I don’t think that this will be the last of Amazon’s purchases,” said Rafael Romero, vice president of Florida-based real estate firm CREC's retail division. “They fully recognize that brick and mortar and online retailing is all retailing and you need both."
Other companies could look to buy expertise in crunching customer data -- an area at which Amazon excels -- and one that more shoppers, especially the Millennial generation, embraces. r
“I think it’s a great idea,” Trish Wichmann of New York said about Amazon’s reputation for speedy service while out shopping on Friday. “(Consumers are) used to texting. We’re used to instant gratification. That’s what we want. I think industries are trying to do that.”
Big food stores that haven't been getting information on customers and crunching it are immediately behind. One of Amazon's strengths is the way it captures purchase history and makes suggestions for new ones.
"Amazon is smart about mining data. They own data like Saudi Arabia has crude oil. Data is going to become only more (important) for those in grocery store business," said Mark Hamrick, senior economic analyst at Bankrate.com.
►The challenges will extend beyond grocery aisles. Food manufacturers and producers need to gear up for two key possibilities: Amazon nudging itself into shoppers' carts with food of its own making. It already has its own brand of many items such as batteries and pet food and Whole Foods sells its 365 Everyday Value brand.
The other major threat: Amazon engaging in margin-busting negotiations.
"If Amazon is able to gain the kind of scale they want in this space, they’ll be very tough in commanding a price," Hamrick said.
Mass retailers now selling groceries, like Walmart and Target, and traditional supermarkets will need to be more competitive to retain customers, especially if Amazon cuts Whole Foods' high prices.
Walmart had long been the biggest threat to the supermarket industry. In the 1990's the chain began adding full-line grocery sections to its stores in a bid to increase sales and push foot traffic to the more profitable clothing and general merchandise it sells and Target followed with its own grocery sections. Today, new entrants such as Germany's Lidl are coming into the market and chains like Aldi (also from Germany) are adding and revamping stores by adding more organic and specialty merchandise such as gluten-free foods, at low prices, to attract shoppers, creating an hyper-competitive environment.
►Mainstream grocers will need to take a hard look at themselves. Kroger's stock dropped Thursday after the company lowered its outlook for annual profit and tanked again after the Amazon-Whole Foods deal was announced. Kroger's shares lost 28% for the week. Stocks of other food sellers tanked, too.
"We're going to see polarization here. Some players, like Wegmans and Publix, are strongly differentiated. I don’t think they’ll lose because of that. The ones that are not so strong and differentiated are more likely to fall victim to the price squeeze and you’ll see the shake-out. Other chains will look to buy these chains to consolidate," said Neil Saunders, managing director of GlobalData Retail, pointing to Buy Low Market in California and Ingles in the South as chains that might struggle to survive.
►In the near-term, at least, the big winner will probably be shoppers. Consumers can look forward to more than just extra cash in their wallets when they leave their local grocery stores. They might see completely overhauled stores -- smaller footprints and larger assortments of exclusive brands, which is the successful German approach already invading the United States. Lidl opened its first U.S. stores on Thursday and Aldi is planning to add another 900 American stores and remodel the majority of its 1,300 existing ones. And Amazon's tech heritage could completely refashion grocery stores from how they are laid out to what products are offered to how shoppers gather their purchases.
Longer-term it's hard to say, but some people and consumer groups have already expressed concern about one company potentially having so much power.
“If you look at mergers in other industries, you already see what are the end results,” said Robert Ambrozy of New York. “This will impact the end users and the price overall. They’re monopolizing the markets, so the rates will definitely go up.”
►It's more a question of when, not if, Amazon will game-change delivery. Purchasing Whole Foods gives it new leverage to expand its online grocery and delivery business, which already includes Amazon Fresh, its own grocery delivery service in limited markets such as New York, Chicago, Los Angeles and San Francisco. Its presence will force regional grocery stores and online grocery delivery services to step up their service, but won't annihilate them. Companies like Blue Apron and Hello Fresh that delivery uncooked ingredients and recipes could also be pressured.
"Everyone's game just needs to get tighter and that battle for the customer becomes all the more apparent," said Jeff Roster, vice president of the research firm IHL.
"This is brand spanking new territory we're smashing through here."
USA Today reporters Sean Rossman, Charisse Jones and Kellie Ell contributed to this report.
- Type of Business: Footwear and apparel retailer
- Acquisition price: $1.2 billion
- Date it was purchased: November 2, 2009
Zappos is the leading footwear and apparel website in the world. The name comes from the word zapatos, which means "shoes" in Spanish. The company was founded in 1999 and grew rapidly, remaining independent until the time of its acquisition by Amazon in 2009. The company is famed for its customer service, and its CEO Tony Hsieh released a bestseller in 2010 that details his management style, called Delivering Happiness. While Amazon does not provide revenue figures on Zappos, Forbes indicated in 2015 that it generated more than $2 billion in revenue annually.
Zappos stands out among Amazon's many acquisitions because it was one of the company's first major expansions into a retail area beyond books.
New Amazon Go store opens in NYC now offers cash sales
In addition to Amazon Go Grocery (1 store), the company operates Amazon Go cashierless convenience stores (25 stores, 1 coming soon), Amazon Pop Up themed kiosks (5 spots, 1 coming soon), Amazon Books bookstores (21 stores, 2 coming soon), Amazon 4-star general merchandise stores (11 stores, 10 coming soon), Amazon Fresh Pickup grocery pickup locations (2 stores), Whole Foods (500 stores) and an Amazon-branded grocery store planned for Los Angeles. It also shuttered its 87 Amazon mall kiosks last year.
Andrew Lipsman, a retail analyst for eMarketer, said the strategy here is a typical one for Amazon. He said Amazon is experimenting with a lot of different ideas to see what works. It's done this with its line of Echo smart speakers and its delivery methods. When you pulled in $11.6 billions in profits last year, why not do it with stores too?
Now that it's built out a handful of store ideas, Amazon is likely to winnow those down to the ones it's found to be the most successful, Lipsman said. That suggests the brands it's been slow to expand won't survive or will stay tiny. Those include Amazon Books, with 21 stores opened over four years, and Amazon Fresh Pickup, with two locations.
The brighter stars in the lineup could be Amazon Go, with 25 stores opened in just two years, and Amazon 4-star, with 11 stores opened in a year and a half.
Kodali noted that Amazon's annual sales reached $280.5 billion this past year, while its small-format Amazon Go and Amazon Books stores likely only generate several million dollars a year each. She argued that it would be better for the company to aim for bigger whales, since even 10 or 20 times more Go stores won't move the needle for such a huge company.
While Lipsman agreed with that dollars-and-cents assessment, he sees the stores more as testbeds for new ideas and places where Amazon can collect precious consumer shopping data it can use for its main online stores and growing advertising business.
More on Amazon stores
Plus, he said, having these stores offers another facet of Amazon's ecosystem, helping build customer loyalty and encouraging them to shop more with the e-retailer. It's the same reason why the company sells its devices at low prices -- if you own a Fire TV stick or Echo speaker, you're more likely to shop on Amazon and become an Amazon Prime member.
The fact that Amazon developed four different grocery ideas points to its huge interest in that area , Lipsman said, since it will help the company expand in online grocery delivery and click-and-collect groceries.
But, hey, even if these stores all turn out to be a bust, it won't harm the company, he said. "Amazon can afford to experiment and spin up a few stores that don't pan out."