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5 Takeaways from Amazon’s Acquisition of Whole Foods

5 Takeaways from Amazon’s Acquisition of Whole Foods



  • Amazon’s plan to acquire Whole Foods Market for $13.7 billion is being called a game changer that not only signals the rise of natural products within the world of consumer packaged goods but that could potentially change how grocery retailers everywhere do business in the long term.

    Here are five major takeaways from Amazon’s Whole Foods acquisition.


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    Photo courtesy of Whole Foods Market

  • The Future of Consumer Packaged Goods Is “Clean and Green”
    One thing is for sure, says Greg Fleishman, a 20-year natural products veteran whose resume includes stints at Kashi, Kellogg’s, Suja, Annie’s, and Coke: a deal this big on the part of the world’s third-largest retailer—and Amazon’s largest investment to date in brick and mortar retail—signifies that the natural products industry is the future of the consumer packaged goods market.

    “There’s no greater statement than this being the largest acquisition for Amazon, that the future of consumer packaged goods is in this space,” says Fleishman, who is now the cofounder of Purely Righteous Brands, a brand-building agency specializing in the green space, and the cofounder and COO of baking-mix company Foodstirs, which is sold at Whole Foods.

    “When you think about the last two decades, there’s no bigger move than Amazon’s acquisition of Whole Foods, signaling a tectonic shift in clean and green products out there,” Fleishman continues. “This is a symbolic. This is a big move signaling the future of clean and green products. There have been debates about whether organic or ‘free from’ or non-GMO products are here to stay, and the answer is, ‘Heck, yes,’ because this move has confirmed that the future of consumer products is in the clean and green space. Anybody that’s been in the natural products industry for a while can feel like they’ve finally won.”

    Amazon’s recent introduction of its Amazon Elements dietary supplements line also confirms the retailer’s interest in the health, wellness, and natural space.


    Photo © iStockphoto.com

  • The Proof Is in Amazon’s Data
    Amazon’s decision to scale quickly into the natural products space via its Whole Foods investment was based on expert data, Fleishman points out.

    “We know that Amazon is expert at not only data collection but also translating that data, analyzing that data, and then putting it into action. Years ago, Amazon started to see an emergence of a broad set of consumers obsessed with health and wellness, and then they started to act on it. They don’t do things quickly; they’re an aircraft carrier. It took them a little while. But they use that data, and then when they acquired Whole Foods, that [decision was made] on that base of knowledge. They would never have gotten to that place had they already not realized that the future of food is organic and ‘free from.’ They knew it was fertile ground.”

    Billy Roberts, Jr., senior analyst, food and drink, with market researcher Mintel, says that the Whole Foods acquisition “certainly suggests Amazon realizes the significant impact that natural/organic offerings and health/wellness items either will have in the future or, for that matter, currently are having.”

    Amazon’s instincts about the future of clean and green are in line with what other analysts see as well. For instance, Mintel’s own data indicate that more than a quarter (28%) of all consumers (not just organic consumers, but all consumers) say that they feel better about themselves when they buy organic, he says. That percentage is even higher among consumers aged 18-34, at 36%.


    Photo © iStockphoto.com/vaximilian

  • Strengthening Online Commerce of Natural Products
    While the majority of grocery store shoppers, including natural product consumers like those who shop at Whole Foods, still prefer to buy groceries at physical store locations, Amazon’s presence may now convince those shoppers (as well as Whole Foods' grocery-retail competitors) to give online grocery shopping a try, Mintel points out in its blog. Mintel also predicts that physical Whole Foods stores could begin to dabble in some of Amazon’s advanced e-commerce platforms like Amazon Go, giving Whole Foods an e-commerce boost where the retailer has struggled in the past.

    Mintel’s Roberts, Jr., says that consumer interest in purchasing natural products online is already growing. Currently, he says, Mintel’s latest “U.S. Natural and Organic Personal Care Consumer” market report shows that 13% of consumers who purchase organic food indicate they have done so online, with products either shipped or picked up in a store. Unsurprisingly, the percentage of natural product consumers shopping online is even higher in the 25-34-year-old Millennial demographic (to 21%) and among parents looking for convenience (to 22%), “suggesting that not only is online a ‘go-to’ resource for these goods but that a new generation is likely growing up with online vendors as an accepted component of the grocery-shopping experience,” he says.

    While Whole Foods will benefit greatly from Amazon’s online reach, Whole Foods brands will face a learning curve as they explore the new world of online retail. For instance, Roberts, Jr., points out, one challenge for smaller Whole Foods brands will be finding a way to compete with the “virtually limitless potential” of online offerings. “The challenge facing smaller brands may well be in how best to stand out from this sizable and growing pack, even if they are able to gain space in the Amazon/Whole Foods network,” he says.

    Fleishman agrees that these brands will have to learn new ways of marketing their products. “The whole experience of discovering brands that might have happened in physical retail is now online, so there is more pressure to be expert at communicating what it is that makes your brand special. You’re no longer going to be at this limited shelf set you might see in physical retail,” he says. “Before, you could put a product in Whole Foods, and a consumer could bump into it and see and touch it and shake a bottle or a box of cereal. Now, you can’t do that anymore, so you have to be tight in your communication. That’s something you don’t see today with a lot of emerging natural products. That’s a lesson to be had.”

    Brands will also find themselves having to learn the technicalities of how to sell product through Amazon, Fleishman says. “The selling of your product now to Amazon requires a different skill set and knowledge,” he says. “It’s all automated, really.”


    Photo © iStockphoto.com/acanonguy

  • Could Temporary Gaps in Amazon’s Supply Chain Pave the Way for New Sub-Markets?
    The goal of this acquisition is to allow Amazon to reach a broader set of natural-product consumers and to give Whole Foods access to Amazon’s vast network of consumers. But can the current organic, clean, and green supply chain infrastructure sufficiently meet what could be significant growth in demand?

    Fleishman says there may be temporary supply chain and pricing gaps as Amazon grows its natural products network. “As [Amazon] begins to execute against this acquisition, you know they’ve got some supply chain issues to work out,” Fleishman says.

    Take the today’s supply chain for organic ingredients, for instance. Currently, “less than 1% of all of the 100 million growable acres in the U.S. are organic, so there’s a limit right now on supply, so there will have to be this tectonic shift in the growing of crops that feed a lot of the products that you see in a place like Whole Foods and on Amazon,” Fleishman says.

    Pricing throughout the supply chain will be another challenge if Amazon is looking to make natural and organic products more cost-competitive while also making those products more accessible. In an ideal scenario, Mintel points out, “Amazon’s success with Prime may also help Whole Foods alleviate some of its negative price perception” by consumers who believe that the retailer’s prices are prohibitively high. "Amazon is favored for low prices and fast delivery, and depending on new initiatives, this sentiment may extend to shoppers who previously avoided Whole Foods, should the partnership help Whole Foods offer more competitive pricing on products,” says Mintel.

    “Amazon is also aware of the desire among consumers for more natural and organic products at affordable prices,” Mintel adds.

    As Amazon works to address those supply issues, Fleishman says, opportunities could open up in the interim for what he calls “ultra-premium natural product” categories, such as ingredients produced through biodynamic agriculture or Identity Preserved.

    “In the meantime, there will be this new market that opens up where you have the introduction of ultra-premium items, and that is a perfect opportunity for other retailers and other brands to go into if they want to be small and they want to be more differentiated,” he claims.


    Photo © iStockphoto.com/StanOd

  • Can Whole Foods Maintain a “Clean and Green” Reputation in an Amazon World?
    Will Whole Foods experience any consumer backlash as Amazon takes the company online and into the global stratosphere? It remains to be seen, but Fleishman, for one, says he remains optimistic.

    “Whole Foods is known for being a safe zone for the cleanest and greenest products available. Time will tell whether there will be any sort of erosion. You really don’t know at this point. Everybody has a hypothesis, but it’s really a guess. At this point, I go into it with a lot of optimism that Whole Foods will maintain its brand identity and continue to deliver against this mission of delivering conscious products that are good for everyone.”

    Mintel’s Roberts, Jr., points to the strong emotional relationship that natural products customers like those of Whole Foods have with the brands they purchase as working in the companies’ favor. “Bear in mind…the most compelling factor for natural consumers is not necessarily convenience or even price; often, their choices are neither easy to find nor even competitively priced,” he says. “However, these consumers have a trust, one bordering on a relationship, with their favorite natural brands. Brands that can leverage those relationships they have fostered with their consumers will be relatively well positioned regardless of what major retailers and national brands attempt.”

    Leaving Whole Foods independent—and leaving John Mackey, Whole Foods Market co-founder and CEO, at the helm, as Amazon indicates it will do—will help protect the Whole Foods reputation, Fleishman says.

    Amazon will certainly want to protect the Whole Foods brand image it’s investing in in the first place, he adds. “Amazon understands that value,” Fleishman says. “It’s clear, based on what you’re seeing, that Amazon understands the value of Whole Foods and its image with consumers, and their reputation can’t erode or it would erode the value of what they’re actually purchasing.”

    Roberts, Jr., concludes, “With the resources at Amazon's disposal, the Whole Foods Market of 2018 and beyond is almost certainly going to be distinctly different than it was in 2016, likely a vastly bigger enterprise with the potential to be a de facto national grocery chain.”


    Photo © iStockphoto.com/Antonio_Diaz

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