Amazon and Whole Foods – what happens once the honeymoon is over?

SUMMARY:

Amazon’s purchase of Whole Foods has the potential to shake up the US retail industry. But to get it right, the ecommerce giant needs to ensure it doesn’t throw the customer experience baby out with the cultural bathwater.

For Amazon  to successfully pull off its Whole Foods acquisition, it could end up using the power of digital technology to personalize the in-store customer experience like no other retailer can today.

Indeed, since closing the $13.7 billion purchase earlier this week, Amazon has already introduced a number of important changes to the ailing upmarket grocery chain.

Firstly, it has cut prices across some product ranges by up to 43% at a number of Whole Food outlets in a bid to make the retailer – known as “Whole Paycheck” due to the cost of its goods – more cost-competitive against arch-rival Wal-Mart, the largest bricks-and-mortar retailer in the US.

The plan is also to invest in more efficient merchandising and logistics systems in order to broaden cost-cutting activities still further. The two companies will likewise integrate their point-of-sale and merchandising systems, which implies that more Amazon products could be made available at Whole Foods’ stores and vice versa.

But at the very least, subscribers to Amazon Prime, which will replace Whole Food’s existing loyalty scheme, will be able to buy Whole Foods’ private label goods from its websites from September.

The fact that physical Amazon lockers will now be installed in Whole Food stores so that customers can pick up packages when popping in to buy their quinoa should be a useful innovation too.

As to why Amazon is targeting Wal-Mart as its key rival though, this is all about trying to position itself as the king, not just of online retail in its US domestic market, but also to become a physical retail powerhouse that can undertake dynamic pricing and stocking more efficiently and effectively than anyone else in order to drive prices down.

Meanwhile, despite having been slow to develop its own online offering, Wal-Mart is just as keen to position itself as the go-to online destination of choice while safeguarding its bricks-and-mortar empire at the same time.

As a result, it has recently been playing catch-up by investing heavily in its digital operation, which culminated in last year’s $3 billion acquisition of Jet.com. It has also just signed a deal with Google to sell its products via the search giant’s website, app and via its Google Home hands-free smart speaker.

Shaking up the industry

But Paul Warner, vice president of consumer and employee insights at customer experience management company InMoment, says:

I think this acquisition will shake up the industry. By purchasing Whole Foods, it expands Amazon’s retail network significantly. It started AmazonFresh to have food items delivered in 24 hours, but acquiring this brand takes it to the next level…Whole Foods will become more high profile in North America and, over time, it will be seen as a staple of the grocery industry rather than aimed at a specific segment. That may dilute its brand for some, but it’ll expand the customer base so many more consumers will be aware of it and become loyal users, and it’ll have much more market penetration.

Warner also believes that if Amazon can use its analytics technology to truly understand what makes for a superior in-store experience crafted to the individual consumer while being provided at a reasonable price, it could be onto a winner. He explains:

I think there’s real potential to merge the two organisations’ different approaches to make customer service more human and personalized. Whole Foods was already known for its helpful employees and was using a loyalty scheme to look at buying behaviour to create a more personalised experience. But Amazon will add much more power to that…It’s about ensuring all the decisions you make around the customer are driven by data and metrics.

This means, in future, customers will be able to choose their own Amazon retail experience. Warner points out:

“Sometimes it’ll be ‘no touch’ so people will pick up their items and walk out of the store, but at other times, it’ll be ‘high touch’, which is very important for some products so that customers can touch, feel and interact with them. So over time, it’ll be about the deeper integration of these two approaches so that they become seamless.

Nonetheless, there has been much discussion in the media about the companies’ two very different cultures and the potential clashes this situation is likely to bring. While Amazon is known for its dog-eat-dog enviroment and the relentless work ethic demanded of its so-called “Amabots”, Whole Foods’ reputation is one of being ethically-motivated and measuring success based on employee happiness and customer satisfaction – so the two are not necessarily obvious bedfellows. As a result, Warner says there is some acclimatising to be done:

Amazon’s business practices are different in the way it manages people and how metrics-centred it is. So there’ll be acclimatising to be done for employees around having more data exposure about what customers think, feel and need. There’ll be advantages in the long-term, but there might be growing pains in the short-term.

This scenario will probably lead to “healthy attrition”, but the upside is that Amazon should be able to attract a new kind of worker that is more comfortable in a “metric-driven, high tech company but who also has competence around the retail experience” too. Warner adds:

So we’ll see a possible shift in the workforce, but it should be beneficial.

Other challenges that he points out Amazon could face include getting to grips with understanding the physical retail space and the type of customer segment that wants an in-store as opposed to online experience. Commoditizing Whole Foods’ products to such an extent that they are indistinguishable from other retailers and losing the personal touch offered by the chain’s frontline staff are other possible dangers.

This means that, in order to get the best of both worlds, Amazon must be prepared to listen and learn from Whole Foods’ management and employees as to what works and what doesn’t in terms of “customer experience” – as opposed to customer product preferences.

The e-tailer will also need to reassure staff that they are still valued. One way of doing this is to enable them to get involved, for instance, by providing forums to discuss potential changes and input new ideas. Another is to make clear the fresh career opportunities that are opened up for people in working for a large, high tech vendor. Warner concludes:

Tech can be an enabler, but staff will be the best source of information so if Amazon can get it right with Whole Foods, it should mean that staff feel valued and heard as change is implemented – and that will definitely have a positive impact on the outcome.

My take

In a filing with the US Securities and Exchange Commission, Whole Foods’ chief executive John Mackey declared that the company’s purchase by Amazon would “help us evolve quicker and better than we could on our own”, which in turn meant that “it’s gonna change our culture”.

But he continued that there was an “integrity” to the Whole Foods’ environment that he believed would be respected. “They’re really smart people. They’re not stupid enough to go in and trash the very asset that they are spending billions of dollars to acquire,” Mackey added. Let’s hope, for all their sakes, he’s right.

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Image credit - Stacey Torman

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