Five years ago, Amazon finalized its $13.7 billion acquisition of Whole Foods, marking its largest acquisition to date. Since then, Amazon has implemented significant changes, including lowering prices and integrating checkout technology across its 500+ U.S. stores. But who owned Whole Foods before Amazon, and what has changed since the takeover?
While Amazon has expanded with 60 new locations, including a “dark store” for online orders, Whole Foods’ market share remains just above 1%, according to Numerator. This pales in comparison to Walmart’s 19% and Kroger’s 9%.
Next week marks a significant transition as Whole Foods welcomes a new CEO for the first time since its founding in 1980. Jason Buechel, the current operating chief, will succeed co-founder John Mackey on September 1st.
“When you have the kind of culture clash that I imagined John Mackey and Amazon had, it’s really impressive that John stayed around in a leadership position as long as he did,” said Jason Goldberg, chief commerce strategy officer at advertising firm Publicis.
Buechel’s leadership begins during a pivotal time for Amazon, which is increasingly investing in brick-and-mortar retail, especially in the grocery sector. In the second quarter, revenue from physical stores increased by 12%, contrasting with a decrease in online sales. This shift differs from the preceding years when Amazon’s physical stores underperformed compared to its overall retail business. Despite this focus on groceries, Amazon recently closed 68 stores, including all Amazon Books, 4-star, and Pop Up locations.
Here’s a look at some of the key differences between Whole Foods today and the company Amazon acquired in 2017.
Operational Changes and Suppliers
Operationally, Amazon centralized certain functions, relocating them from individual stores to Whole Foods’ headquarters in Austin, Texas. Despite some predictions, Whole Foods has not transformed into a conventional supermarket. The company reports adding 3,000 local brands in the past five years, a 30% increase since before the Amazon acquisition, rather than replacing regional suppliers with larger corporations.
Each region employs “foragers” who scout for new local products. This model allows smaller brands to remain in select stores, rather than requiring company-wide supply capabilities. Amazon leverages its data analytics tools to optimize brand selection in specific stores.
“Going into a Cupertino store is a very different experience, versus walking into a Los Altos or Los Gatos store in the same Northern California region,” said Guru Hariharan, a former Amazon software development manager who now runs e-commerce management company CommerceIQ. “They’re probably doing a better job because of the personalization algorithms.”
Alt text: Whole Foods Market storefront showcasing local and organic produce, highlighting its brand identity.
Whole Foods also runs an accelerator program to help local producers secure shelf space in local stores, along with certified training programs to certify Whole Foods workers as cheesemongers and butchers. Although some hot food bars, free samples, and specialty chef counters were temporarily suspended during the COVID-19 pandemic, Whole Foods confirms their return.
Despite its expansion, Whole Foods maintains its commitment to local and clean products. Since the Amazon deal, the company has more than doubled its list of banned food ingredients, reaching over 250. Prohibited ingredients include hydrogenated fats, high fructose corn syrup, and artificial sweeteners. Meat products must also be free of antibiotics and added hormones.
Whole Foods has also enhanced its standards for canned tuna, eggs, and chicken. In 2019, the company banned plastic straws and minimized other plastics by introducing new produce bags and rotisserie chicken containers.
While changes have been rapid, the transition hasn’t been entirely smooth for Whole Foods employees. A year after the acquisition, a group of Whole Foods staffers emailed thousands of fellow workers expressing concerns over the removal of stock options and increased workloads with less compensation. Some employees attempted to unionize under the Retail, Wholesale and Department Store Union, but these efforts have stalled.
Autonomous Shopping
The most noticeable change for shoppers is the integration of technology within the stores.
Customers can now enroll their palm print with Amazon One to make payments without a card or phone. The device scans the user’s palm and charges their Amazon account. This technology is currently available at over 20 Whole Foods locations, with plans to expand to 65 more stores in California.
However, privacy advocates have raised concerns.
“When you start using biometrics for payment, people, rightly so, are concerned about that and how those biometrics are being used,” Goldberg said.
Amazon is also marketing the palm-scanning technology to other retailers and event venues. However, in March, Denver’s Red Rocks Amphitheatre withdrew from a deal following concerns that Amazon would share palm prints with government agencies, sparked by activist groups and musicians like Rage Against the Machine.
At Whole Foods, palm-scanning devices are central to the checkout-free shopping experience. Amazon has launched Just Walk Out technology in two Whole Foods locations, one in Washington, D.C., and another in Los Angeles.
Amazon wouldn’t provide an official tour, so CNBC independently tested the Washington store. The store uses hundreds of cameras and hidden scales to track purchases, enabling customers to exit through Just Walk Out turnstiles after paying with a palm scan. However, the test revealed inaccuracies in the emailed receipt, with several items missing, likely due to a brief departure from the monitored area.
“The first version of any of these things, that kind of day one experience as Amazon likes to call it, are always going to be imperfect and have the potential to put customers off if it’s really bad enough,” Goldberg said.
Amazon maintains that Just Walk Out is “highly accurate” and allows customers 30 days to request a refund for discrepancies. Addressing privacy concerns about data sharing with consumer goods companies, Amazon stated that sensitive information is handled according to its established policies, including sharing only aggregate, anonymized insights with brands.
The privacy issue has gained prominence as Amazon expands its data collection through Alexa devices, Ring doorbell cameras, and, soon, room-mapping robot vacuums.
“It’s very rare that a grocer also has these incredible digital technology offerings that can help it get through more difficult periods,” said Ethan Chernofsky, lead data analyst at Placer.ai, a location analytics company. “There is a feeling that with their technology expertise, they can identify elements of scale and profit maximization that maybe others can’t.”
AiFi, an Amazon competitor in autonomous retail, has installed its computer vision system in 84 stores, including Aldi in Europe, concession stands at the Detroit Lions stadium, 50 of Poland’s largest convenience stores, and gas station mini-marts in California. AiFi’s chief technology officer, Joao Diogo Falcao, argues that the technology encourages customers to buy more, rather than deterring them.
“There’s anecdotal evidence that says that you buy more products because you never look at your wallet,” Falcao said. “We’ve seen 20% basket increases when the store has been running for a while. We also see that with enough adoption, with enough marketing, you have clients come in and then it’s a sticky technology. They like it, so they come back.”
Amazon is also experimenting with the Dash Cart, which tracks and tallies items as shoppers place them in the cart. These carts are currently limited to small grocery orders and cannot be taken to the parking lot. The Dash Cart will soon be available at its first Whole Foods in Westford, Massachusetts.
Lowering Prices with More Private-Label Goods
Amazon aimed to lower prices, contrasting with Whole Foods’ reputation at the time of the acquisition, when it was often called “whole paycheck” and ridiculed for selling $6 asparagus-infused water.
An Amazon spokesperson stated that their goal was to “make high quality, organic foods more affordable and accessible for everyone,” and that they have since “lowered prices across aisles at Whole Foods Market, offered Prime Membership Discounts and Prime Member Deals in-stores.”
Amazon also focused on increasing profit margins, a challenging task in the grocery industry.
“You sell a lot of dollar bananas that you pay 99 cents,” said Goldberg. “So you have to be really efficient to make money. And the vast majority or a good chunk of the things you sell are perishable.”
One strategy to improve margins involves selling private-label goods, or in-house products. Whole Foods’ 365 private label underwent a brand refresh in 2020. Whole Foods reports adding 295 new products to the 365 line last year, bringing the total to 2,200.
“What Amazon has been slowly starting to do is replace a lot of the purchases in Whole Foods with this private-label brand, and that has allowed them to bring prices down,” Hariharan said.
Coresight Research indicates that Amazon has at least 111 private-label brands, including Amazon Basics and Solimo for household goods, and Amazon Essentials for clothing. Amazon has also been accused of using its data to unfairly advantage its in-house products.
Alt text: Whole Foods Market shelf featuring a variety of 365 private-label products, a key component of Amazon’s strategy to lower prices and increase profit margins.
Moving Online Orders to ‘Dark Stores’
Online grocery orders are a major focus for Amazon. Whole Foods reported delivering three times as many online orders in 2020, the year the pandemic began, as in 2019.
“Orders are shifting online, but they’re generally not profitable,” Goldberg said. “Every grocer in America is interested in digital grocery. They’re trying to capture that digital grocery customer, but they’re also trying to figure out how to make it more profitable.”
This has led Whole Foods to expand, as closer proximity to customers translates to more affordable delivery. The company says its 533 global stores can now serve over 170 million customers in the U.S., Canada, and the U.K.
Whole Foods has also built a “dark store” in Brooklyn, New York, dedicated solely to preparing delivery orders. Walmart, Albertsons, and Kroger are also experimenting with this concept, utilizing robots to pick orders and reduce labor costs.
“Competing with professional shoppers is moving up on the frustration scale for many, many consumers,” Goldberg said. “That’s part of the reason that some retailers have experimented with either dark stores or fulfillment centers.”
Instacart previously had an exclusive agreement to fulfill Whole Foods’ online orders, but this ended the year after Amazon’s acquisition. Amazon has since transitioned the majority of those gig workers to official Whole Foods employees. Other employees monitor areas where Amazon online customers can pick up packages and drop off returns, often without a box.
The Whole Foods Scorecard
Measuring the success of the Whole Foods acquisition is challenging because Amazon includes its sales in the physical stores category, along with its 60 Amazon Fresh grocery stores, an Amazon Style clothing store, and 25 smaller Amazon Go stores. However, Whole Foods is the largest contributor in this group.
Earlier this year, the outlook appeared uncertain, with the closure of six Whole Foods stores shortly after Amazon missed its first-quarter earnings estimates.
As consumers return to in-person shopping, Whole Foods is demonstrating signs of recovery. Placer.ai reports that the number of visits to Whole Foods is now approaching levels seen in July 2017, before the Amazon acquisition.
“Since the start of the pandemic, Whole Foods was one of the harder-hit groceries and its recovery trend has been less strong than others,” Chernofsky said. Regarding the store closures, he added, “It really is right-sizing, and it’s a push towards optimization.”
Since the other retail closures in April, Amazon has opened seven new Amazon Fresh stores, a more mainstream grocer with 41 stores in the U.S. and 19 in the U.K. Whole Foods also plans to add 50 new stores in rapidly growing regions.
“You have the potential for this three-pronged approach to attack grocery, which is Amazon Go as this perfect urban quick in-and-out opportunity, then Amazon Fresh as convenience value-oriented, going into the suburbs and in some urban areas as well,” said Chernofsky, adding that Whole Foods will likely remain a more high-end grocer. “That mix could be incredibly potent.”
So, to answer the question of who owned Whole Foods before Amazon: Whole Foods Market was a publicly traded company before being acquired by Amazon in 2017. John Mackey, the co-founder, remained CEO for a time after the acquisition, helping guide the transition. The impact of the acquisition continues to unfold as Amazon integrates its technology and strategies into the high-end grocery chain.
