How Amazon Changed Whole Foods

Whole FoodsIt has been almost two years since Amazon acquired Whole Foods for $13.7 billion in cash. And over these two years, changes have been made to Whole Foods, at the corporate level and down to the individual store as well. Some of these changes have been for the good, while others have left people questioning what has happened to Whole Foods. In the end, as part of Amazon, it is all about the bottom line, and that is what drives change.

The Prime Effect

The single biggest change has been Amazon Prime’s impact on Whole Foods. In the past, Whole Foods was not known for discounting based on a membership model. Now, however, there are the telltale blue and yellow Prime discount stickers letting shoppers know that organic strawberries or grass-fed beef is on sale this week. Considering my wife and/or I somehow end up Whole Foods multiple times every week, these stickers and the new Prime Whole Foods app are quite convenient for when we are looking to stock up.

However, the impact of Prime goes well beyond in-store discounts. In 2014, Whole Foods and Instacart partnered to bring home deliveries to multiple markets. The business model was straight forward: Instacart shoppers would receive an order for a customer, go to the local Whole Foods, complete the shopping trip, and deliver the items to the customer’s house within a specified timeframe. About a year before the acquisition, the two companies extended the partnership with a five-year delivery agreement in which Instacart had an exclusive deal for delivery of perishable goods. With the acquisition, there was clearly a conflict for home delivery, especially given Amazon’s drive to consolidate Prime Now and Amazon Fresh into a single service. Whole Foods and Instacart initially said that the partnership would continue as Amazon’s offerings didn’t overlap too much with Instacart’s deal to deliver perishables. But it was clearly only a matter of time before the partnership ran its course.

That time has come. At the end of 2018, Instacart CEO Apoorva Mehta wrote that the relationship with Whole Foods was winding down. Over the course of the last few months, Instacart branding has been fading away from stores and the first waves of shoppers have been impacted. Over the course of the rest of 2019, all Instacart branding will be removed from Whole Foods locations and remaining shoppers will be relocated to shop for other grocery stores. The acquisition has made an impact on both Instacart and Whole Foods for home delivery.

For Instacart, losing the partnership with Whole Foods could have looked like a major blow. The Whole Foods partnership once accounted for at least 10 percent of Instacart’s revenues. However, with the acquisition, Instacart began to expand its operations, partnering with a host of new grocery chains to begin delivery service including Safeway, Publix, Ralph’s, Sprouts, Kroger, Aldi’s, and Costco. Now that online grocery shopping has hit a critical mass, Instacart’s plans for expansion are paying dividends. And even though losing Whole Foods was not an ideal situation, it helped the company to evolve and expand.

Whole Foods has seen a change since the acquisition as well. Aside from the in-store Prime branding and discounts, the company has expanded its online capabilities. Using Prime Now, customers can receive grocery orders in as little as two hours, between 8 am and 10 pm, depending on the market. Amazon and Whole Foods still have a relatively small percentage of the grocery market. However, as online grocery continues to grow, having Amazon in your back pocket can only help.

Corporate and Store Changes

At the corporate level, there have been changes since the acquisition as well. The biggest change was the centralization of operations at the Austin, TX headquarters. The main piece here was centralized buying and moving from a regional to national strategy.

Amazon has also imposed merchandising fees for suppliers in its stores for items that are on sale. On a rotating basis, Amazon offers a 10 percent Prime discount on select products. Whole Foods is now charging that 10 percent discount back to the vendor.

There have also been changes at the store level. As I mentioned last year, Whole Foods has been facing food shortages at some stores. While many customers were quick to blame the acquisition on increased foot traffic, it turned out it was due to a new inventory management system “order-to-shelf.” In this system, store associates often skip the stock room and bring items directly from delivery trucks to the shelves. The positive aspect is that it has caused less spoilage in stock rooms, reduced costs, and allowed associates to be more customer facing. However, the result has also been empty shelves, angry customers, and discouraged employees.

The aforementioned centralization of operations included marketing operations as well. As a result, Whole Foods terminated the store graphic designer position and eliminated a large number of regional marketing staff. Within the store, this has made an impact. Our local store used to have a beautifully drawn chalkboard calendar with upcoming events in the store. With the acquisition, not only did this position disappear, but so did the in-store events such as storytellers for children. But, this move is not a surprising one as Amazon tries to centralize all operations to drive profitability.

Final Thought

Any acquisition is going to have its share of growing pains and there is always the potential for a culture clash. Obviously, the acquisition of Whole Foods by Amazon is no exception. The acquisition has changed the culture of Whole Foods in a number of ways. While there are the obvious visual changes, from Prime branding and signage in the stores to a change in the layout and products available, other changes are more behind the scenes. The biggest change has been the dissolved partnership with Instacart and the push for Prime Now deliveries within two hours from your local Whole Foods store. The new venture is still a work in progress and it will be interesting to see what other changes Amazon makes and the impact it has on Whole Foods, its customers, and the overall market.

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