Amazon's Purchase of Whole Foods Could Permanently Alter U.S. Grocery Industry

Professors in the Texas Tech University Jerry S. Rawls College of Business are available to speak regarding the effects, both positive and negative, this acquisition could have on the business community.

Pitch

From clothes to electronics to daily household items, Amazon has changed how America shops. By offering items shipped directly to the home without having to walk out the front door, the company created the avenue for online shopping that has become a preferred method of acquiring goods, not only because of its ease but also because it does so, often, at lower prices than can be found in stores.

Now, Amazon may be ready to change the way Americans buy their groceries. Last week, Amazon announced a $13.7 billion purchase of Whole Foods, announcing its intention to become a major factor in the U.S. grocery industry, taking on giants such as Kroger and Walmart.

Amazon’s acquisition of Whole Foods could send ripples through the grocery business, possibly bringing down prices and forcing competitors to match them, eliminating the middle man and supplying food items directly or making its own products, thus affecting jobs.

Professors in the Texas Tech University Jerry S. Rawls College of Business are available to speak regarding the effects, both positive and negative, this acquisition could have on the business community.

Experts

Talking Points

  • In terms of sustainability, Romi views the acquisition of Whole Foods as a detriment. Whole Foods values include many things not at all in-line with the operational structure at Amazon. Whole Foods values the highest-quality natural and organic products, customers as their most important stakeholder, a true commitment to employees and their well-being, a commitment to long-term shareholder value, a commitment to local communities, strong environmental stewardship, a commitment to suppliers and education about healthy eating. Amazon has faced many challenges with their treatment of employees and suppliers and, it could be argued, does not have an operation style that lends to the local community focus and environmental stewardship of Whole Foods.
  • Unlike the purchase of Ben & Jerry’s by Unilever, where Ben & Jerry’s was allowed to remain autonomous in their decision making and commitment to sustainability issues, this acquisition will likely change the entire Whole Foods social mission. Unilever scores a 70 on the overall sustainability scale with respect to community, environment, governance and employee focus. Amazon scored a 45.
  • If Amazon and Whole Foods can “play nice” together, Amazon’s acquisition of Whole Foods may disrupt the grocery retail space by shifting the emphasis from conventional, “unhealthy” products to sustainable, “healthy” alternatives. Amazon’s scale, distribution network and online presence could enable Whole Foods to reach a broader group of consumers and to sell more products at lower prices, creating pressure for other grocers to follow suit. In other words, this unusual marriage may forever change the rules of the game in an industry that has remained relatively unchanged since its inception.
  • Whereas most analysts and media venues are focusing on the financial and operational implications of Amazon’s acquisition of Whole Foods, Amazon may have had less obvious, yet equally important, reasons for doing so. Amazon’s prominence and visibility increase the likelihood that the company will face disruptive pressure from influential activist organizations such as Greenpeace and People for the Ethical Treatment of Animals (PETA), to make Amazon operate in more socially and environmentally sustainable ways.
  • From its inception, Amazon always wanted to be a one-stop premier retailer for customers. Although it started as an online-only company, it quickly realized that it will be difficulty to compete with other retailers without a strong distribution system and without having some type of brick-and-mortar presence. That’s why, in recent years, they have been ramping up their physical presence with small pick-up/drop-off locations and pop-up stores across the country.
  • The purchase of Whole Foods fits well with Amazon’s marketing strategy. First, Whole Foods will provide the necessary distribution support that Amazon was looking for. And second, it is financially a sound purchase. Amazon paid around $13.7 billion for Whole Foods, and it gained more than that amount in market value in the stock market after the acquisition.
  • This acquisition also brought a successful online company into a brick-and-mortar setup. This will help break the psychological barrier among customers who prefer one channel to shop versus another. And this is something United Supermarkets, Walmart and other competitors should be thankful for. If these competitors stick to their own value proposition to their customers, they should also see a boost in their e-commerce channel sales.

Quotes

  • “At some point in time, as a society, we need to decide what is the most important thing to us – making money at the expense of society and the environment or valuing and preserving society and the environment over money?” Romi said. “I argue this is not a zero-sum game.”
  • “We cannot expect that Whole Foods will remain committed to the sustainability issues they have prided and built their business on since its inception,” Romi said. “This acquisition will likely be the end of Whole Foods as we know it. Unlike the purchase of Ben & Jerry’s by Unilever ... Whole Foods will not remain autonomous in their decision making and will not retain their vast commitment to sustainability.”
  • “In 2015, John Mackey, Whole Foods’ founder and CEO, described Amazon’s foray into the grocery retail as the company’s ‘Waterloo moment,’ Waldron said. “Yet, Amazon’s cultivation of massive scale and ubiquitous distribution, of which Whole Foods constitutes one example, could represent Amazon’'s ‘Normandy moment,’ as it uses its sheer size and force to overtake the grocery retail space.”
  • “By aligning itself with Whole Foods, Amazon has effectively reduced the risk of attacks from activist organizations by purchasing Whole Foods’ positive reputation and extensive goodwill among these organizations,” Waldron said.
  • “I think grocery businesses like United Supermarkets, Walmart and others need to stick to their competitive positioning,” Dass said. “For example, United Supermarkets is known for its customer service. So it needs to make sure it makes an extra effort to have strong relationships with its customers and focuses on building a loyal customer base.”
  • “I believe that this is a win-win situation for our local customers,” Dass said. “In the near future, they may not only have more options to shop, but may see better customer service and active support from various companies to win their business.”

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Rawls College of Business

The Rawls College of Business accounts for about 25 percent of Texas Tech graduates.

The college has a full-time teaching staff of roughly 100 in seven academic areas: accounting; energy, economics and law; finance; health organization management; information systems and quantitative sciences; management; and marketing.

The college offers an accredited weekend MBA for Working Professionals program.

Dedicated to connecting students, alumni and employers, the Career Management Center assists Rawls College students with their transition to the world-of-work, and supplies prospective employers with top-notch candidates, ready to make an immediate contribution.

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