7 investors and brand builders on Whole Foods, Amazon and the future of grocery7 investors and brand builders on Whole Foods, Amazon and the future of grocery
Nutrition Capital Network principals and selection committee members weigh in on the deal and what it says about where the grocery business is headed.
June 26, 2017
With all the shareholder activism we've been seeing in recent months, it's not a surprise that Whole Foods Market would agree to sell given the pressures. I was surprised, however, that it was Amazon that pulled the trigger. But given some time to consider, it is clear Amazon has the capacity to make this kind of acquisition, particularly compared to the grocery companies and other retailers that would have been in the market to buy Whole Foods.
In addition to the shareholder issues surrounding Whole Foods Market and its relative lack of growth in same-store sales and scope for adding new sales, which contributed to the pressure to sell, I think another factor is the driving force behind Amazon to continue to grow and expand into broader platforms across the entire economy. A factor in this is the perhaps megalomaniac behavior of Jeff Bezos. But I would say megalomaniac only in the best way, or at least a better way than it usually connotes. He does own the Washington Post and quite an assortment of other assets.
I think the traditional grocery model will thin in the ranks a bit but only lose 5 percent to 10 percent market share, in terms of where Americans buy groceries over the next 10 years, but that still is a significant number and enough to retire some grocery brands. Most of that share will be made up by delivery as manifested by Amazon, and enhanced by better online shopping experience possibly using virtual reality, but a portion will be made up by local markets and some local delivery as well. I have not given up on my fresh bread bicycle delivery business.
By 2020, I would think Whole Foods Market will retain almost all of its current sites and maybe add another 50 to 100 of similar scale in North America, provided it can sustain sales volume in most of its key locations and tack on efficient delivery growth out of those operations. It will be interesting to see if they expand sites and the brand into other countries.
I asked some colleagues at the Nutrition Capital Network for their reactions to the deal.
Steve Allen, cofounder of Nutrition Capital Network and partner at venture capital firm Digitalis
"First, I think the deal is more about Amazon than WFM, in spite of all the shareholder activism. But there still may be a competitive bid—watch for Target or maybe even Kroger try to up the Amazon bid. In terms of all industry players, I think Instacart stands to lose the most. Overall, I don't think Amazon wants to be in the mass-market grocery business. But they like the data about upscale shoppers who use WFM and are relatively price insensitive. This is the only segment of shoppers it makes sense to want to own."
David Thibodeau, managing director at Wellvest Capital
"Assuming this deal goes through, I think it is a positive game changer for WFM. WFM has been struggling with a rapidly changing retail environment for natural/organic foods. Availability has become ubiquitous, and the effect of ecommerce is completely changing the face of retail. Unless a retailer provides a discernibly different retail experience, consumers will default to ecommerce. Combine this trend with an investor group in WFM that, since 2008 and most recently more so with Jana Partners, has been pushing the company to act like the rest of the conventional grocery competition. The downward slide has been plainly obvious in the WFM retail experience, vendor experience and financial performance. That is not a winning formula.
The Amazon deal could very well breathe new life into WFM. Allow them to source the new and unique products that keep people interested in the retail experience and the Whole Foods brand, and extend its offerings online in unique ways with unique experiences. As they say: 'Go big or go home.'"
Debbie Wildrick, chief strategy officer at MetaBrand
"It certainly leads one to question what their real objectives are with brick-and-mortar and how their objectives can lead to home delivery to a new level. I’m quite surprised by it, but is this the new leap for a traditional brick-and-mortar, one that was built upon a combo of natural, organic and specialty? I think it explores in a bigger way the 'foodie' and delivery, versus in-store exploration. Or will they run this very much like the brick-and-mortar it has been but enhance it with delivery (probably makes the most sense). Whole Foods really hasn’t embraced delivery, but it has embraced experience in a way that Amazon probably doesn’t even know how to do."
Jim Tonkin, founder and president of Healthy Brand Builders
"My view on this blockbuster but predictable deal is simple: Amazon has a vision to bring fresh and natural products to 'every home in America.' Remember WFM is a quasi-elite shopping experience, charging exorbitant prices for products it carries. Many folks cannot afford to shop there, let alone do it regularly. Amazon, on the other hand, is the preeminent delivery vehicle, with a proverbial plethora of available products at the 'best' retail price available, and if an Amazon Prime member (regular user), the consumer gets his order delivered free!
The merger of these concepts will promote a great number of retail brick-and-mortar locations nationally wherein Amazon can use them as outlets to get product to consumers closer to their homes/offices in a timely manner. They can now deliver produce, frozen and refrigerated products as well, which today, even through Amazon Fresh, is not an easy job.
Because Whole Foods Market has been struggling for some time, losing customers and with declining revenues and same-store sales, I think Amazon really should be seen as a white knight, but at the same time getting a good deal for $13.7 billion frankly. Synergies between the companies should result in learnings by each from the other, and the consumer stands to win big time by lower prices, more promotional activities and better product mix."
Carlos Barroso, SVP global R&D and quality for Campbell Soup
"Wow! They are going to accelerate the pain for retailers ... and they are not going to play nice with branded foods. The perimeter will continue to grow as the center store shrinks."
Greg Horn, president of Specialty Nutrition Group
"First reaction: Brilliant! This will both bring greater buying power to the natural/organic food segment, making it more affordable, and give Amazon a base from which to grow its grocery delivery business with a differentiated product offering. The future of grocery, in my view, is a hybrid model incorporating both stores and efficient delivery. This model will significantly benefit from economies of scale in infrastructure, buying power and offering."
Grant Ferrier is CEO and Principal of Nutrition Capital Network and co-chair of NCN investor meetings.
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