Whole Foods has been rescued by its $13.7 Billion sale to Amazon, which should not only be able to leverage WF’s 431 stores with upscale shoppers, but amplify it with personalization, promotions, Prime Now delivery, and a broader selection of high margin lifestyle goods (which account for a high percentage of Whole Foods’ profit).
Whole Foods had almost single-handedly defined the premium healthy food and lifestyle category in groceries in the 1990s and early Aughts, but competitors like Vons, Kroger, Costco, Eatily, WalMart, Target and Trader Joes had caught up with increased selections of organic and high end deli and lifestyle goods, eating away at its margins.
While Whole Foods has had a nice menu App for a couple of years, it hasn’t done much to promote it. Whole Foods has generally been slow to move into natural adjacencies, such as non-store restaurants and lifestyle Web, mobile and TV content programs. In fact, its major response to its challenges have been some unconvincing, downscale grocery concepts. In sum, it really had nowhere to go, and was experiencing same store declines in many markets. It had also been forced to close a number of outlets.
Amazon’s entry, however, reinforces the whole proposition for Whole Foods shoppers, most of whom are already Prime members. Whole Foods’ unprecedented strength with digitally attuned, upscale shoppers has been proven with the successful and leading role it plays with Apple Pay; and hundreds of thousands of discount coupons sold via Groupon, Living Social and Amex Offers. Amazon will especially push hard on personalized promotions, which can boost awareness, frequency and new sales.
We’re especially interested in the potential here for more aggressive and personalized promotions. In early 2016, WF Payments Marketing Director Marushka Bland said that digital coupons was “about our customers and how they shop with us. Execution, targeting and attribution” are the keys to the program, with a target goal of 10 percent incremental spend. Bland noted that the company was historically “discount reluctant,” but intense competition has made it “much more open to worrying about its customers and eager to focus on things like loyalty.”
Our expectation is that Amazon will use its acquisition to ensure that Whole Foods is much more than a simple grocery store. It will undoubtedly use it to beef up its broader retail strategy for books and other goods, leveraging its strength in local warehouses. At the same time, it will use grocery delivery to effectively anchor its $7.99 one hour delivery Prime Now program, which is now in 45 cities in seven countries.
It may also use the stores for local events; and perhaps borrow the Whole Foods 365 brand for a wide range of new private label products. It may even use the stores as delivery depots — along the lines of what it has been attempting to do with 7-11 — and as local anchors for hiring and recruiting for Amazon Services, a Home Advisor-like SMB referral service that remains a big question mark. All of these efforts should transform the economics of the limited grocery store that Whole Foods has been getting killed on.