Amazon, Whole Foods, Red Tomato; Our Team Weighs In

 

For all those involved in food, news of the potential acquisition of Whole Foods by Amazon spread quickly and was topic of great discussion in our office and with our growers. Given a few days to digest and think members, of our team weigh in;

Laura Edwards-Orr, Executive Director

“Five years to adapt or become irrelevant”. This was the headline Harvard Business School professors gave grocery store chains in their 2014 book “Retail Revolution: Will Your Brick-and-Mortar Store Survive?” Taking a close look at competition from e-commerce and box/club stores, rising income inequality across average shoppers and decreasing profitability in US grocery stores, our colleagues at HBS saw an urgent need for the sector to pivot in order to better serve their customer’s evolving preferences. Since then we’ve seen a veritable explosion of tech start-ups trying to offer solutions to the grocery industry. From affordable last mile delivery, small format urban stores and “click and collect” models to buy online and pick up at the store, made popular by European retailers. All while Whole Foods was expanding rapidly towards their goal of 1,200 stores while trying bring down costs for their shoppers.

And then the news broke. Amazon to Buy Whole Foods for $13.4 Billion!

And shortly thereafter came logical analysis showing the synergies of the two companies: Amazon to bring efficiencies to Whole Foods and the retailer offering Amazon the infrastructure to leapfrog past the R&D conducted under their Amazon Fresh banner. And then the satire.

But in all seriousness, for those of us who’ve gone to sleep at night worrying about the future of the modern grocery store – the ones that still feed millions of people every single day – we can’t help but wonder: Does Amazon offer Whole Foods the bridge into the future so many retailers are searching for? Will the partnership generate a new vision and infrastructure for food retailing? At what expense? And for whom?

Instead of worrying about what might go wrong, and clearly plenty could, this is an opportunity for us in the Good Food Movement to paint a picture of opportunity. Jeff Bezos, Amazon CEO, himself tweeted out a request for input on how his philanthropy could generate greater impact at the intersection of “urgent need and lasting impact” just one day before the announcement. If a genuine philanthropic strategy could infuse this corporate union with mission it would be unstoppable.  Could it put an end to food deserts, as Annie’s, Inc. president John Foraker suggests? Could it drive up quality, of service or products for the competition like Good Eggs, Farmigo and others in the food/tech space? Or might it free up philanthropic and venture capital resources that have been dedicated to solving the “last mile” question over the past several years?

We’re optimists here at Red Tomato. As long-term suppliers to Whole Foods, we’ve had the pleasure of building meaningful relationships with people inside their regional and global produce divisions. We’ve benefited from the passion and integrity they bring to their work. We consider them partners in our work to elevate mid-size growers as anchor suppliers to regional food systems. As a very, very minor vendor to Amazon Fresh, we’ve marveled at the lean systems used to run their produce purchasing and their commitment to innovation and casting a long view. If bringing together these two companies can offer a lifeline to the grocery industry and create a new paradigm for getting more fresh, sustainably grown, local produce to a wider audience, I’m thrilled that Red Tomato will have a front row seat.

Michael Rozyne, Founder/Evangelist

When Jeff Bezos purchased the Washington Post, I heard a radio report saying that the Bezos purchase has turned the Post into a technology company—a reference to their approach to advertising, how they manage and sell it, who they target, and, most important of all, how they took on software development internally. The Post’s advertising management software is now a product unto its own, one that they are selling to other newspapers.

Regarding Whole Foods, I am reading great optimism out of the mouths of internet company CEOs. They are noting that this proposed merger/acquisition will lift up the entire internet-driven food sector – not only Amazon itself. Not only will it grow the sector, but it proves to all the skeptics of internet-driven food marketing, the nervous early investors (and to the rest of the world) that the brave souls, the brave entrepreneurs already on this path, were thinking clearly about the future of food. I’ve been one of the skeptics. I’m paying close attention.

I have to believe that this is a better deal for Whole Foods than just selling to one of the established retail giants in the supermarket business. The giants (think Kroger, Ahold/Delhaize etc) have been focused so much on cost reduction at the expense of other ways to make a brand outstanding or create customer satisfaction. I think that Jeff Bezos will be more of a long-game player. And taking pressure off the quarterly results, and putting more pressure on the 5-year and 10-year results has to be good for Whole Foods and their customers and their suppliers (like our growers). Short-termism feels like a disease. I want to think about this deal as a step toward long-termism.

Sue Futrell, Director of Marketing

If the deal goes through, it’s big– although I think it’s less about “revolutionizing grocery” than about accelerating the pace of changes that are already happening.  A possible upside for those of us who care about farmers, product and environmental standards, and workers is that Whole Foods has been a market leader for many decades in these areas. The organic and natural products industry pioneered by retail coops and independents has championed these values, but WF’s significant influence and sales volume brought them out of the sidelines. Amazon, on the other hand, is coming to groceries without much of their own supply chain in place. So if they decide to support, value and build on the suppliers and standards that Whole Foods has invested in building, the deal could bring resources and technology to a fairly progressive retail player, one that has been under increasing pressure by shareholders to focus on profits and efficiency.

For Amazon, the deal is a relatively small investment that gives them a strong foothold in premium retail. They’ll have room to test their innovations around delivery and online ordering without having to sustain the larger, lower-margin footprint of a more conventional grocery chain.  Amazon, potentially, has a head start on figuring out how WF groceries might become more accessible both cost-wise and geographically to more people. For both sides, this seems like a better deal than, say, Amazon buying Safeway, or than Safeway or Walmart buying Whole Foods.

On the bleaker side, Amazon is known for cutting margins out of supply chains and pricing below their competition, which usually isn’t good for suppliers. A company with giant volume and reach acquiring a company with not-so giant market share but outsize influence means more consolidation of purchasing and market power in fewer, and probably less transparent, hands. If Amazon’s priority is cost-cutting and efficiency over product standards and social/environmental impact, consumers will lose a major source of specialty food products, and small, new companies could have a harder time making it in the grocery world. That will diminish options for customers and suppliers beyond Whole Foods.

If I set aside my own undeniable discouragement about the relentless march toward concentration of economic control over a basic necessity of life – food – it’s possible to have flashes of optimism that this might be a meeting of newer, more creative minds, and that some good might come of it.  I don’t think real change comes from the top or from the marketplace alone, but it will be interesting to see what Bezos (and Mackey) do with the challenge.