When Amazon bought Whole Foods earlier this year, it put the entire grocery industry—really, the entire retail industry—on notice. It’s hard to fault Amazon as far as business decisions go: According to Seeking Alpha, the $13.4 billion purchase price is less than a single year’s revenue for the grocery store chain, which in cold financial terms is a relative bargain for the online retail giant.
Couple that high-value opportunity with a chance to increase its brand profile in two areas it has long targeted—grocery and brick-and-mortar retail—and nobody can criticize Amazon’s decision to acquire Whole Foods. If anything, it’s something to marvel at: The world’s biggest retail giant just got bigger, and no one’s totally sure what it means for the future of the retail industry.
But Amazon didn’t really buy Whole Foods for its current revenue stream, or to become a bigger player in the grocery game. These are obvious benefits to the brand and, to some degree, an easy explanation for why Amazon agreed to acquire Whole Foods. But the actual reason—the business opportunity, that is—has much less to do with turning a grocery profit. It’s all about access to a coveted consumer market.
Brick-and-mortar retail plays an undeniable role in that strategy, especially when it comes to building an infrastructure able to provide for a wider range of consumer needs. But the superficial ways in which Amazon is making its presence known at Whole Foods are just the tip of the iceberg of the company’s larger agenda.
Image attribution: Raquel Martínez
Amazon Gains a Foothold in the Brick-and-Mortar World
Amazon promised changes would come on the very first day of its ownership of Whole Foods. At the top of that list: lowering prices across a wide range of grocery items.
The grocery store chain known colloquially as “Whole Paycheck” saw prices get slashed all throughout the store. The gut reaction from many consumers was that Amazon’s deep pockets and business model would allow the company to still turn a profit while lowering prices and attracting a more diverse consumer base.
That’s only partially true, it turns out. Yes, news of its price-slashing strategy resulted in a big uptick in foot traffic for Whole Foods stores across the country. According to Bloomberg News, research by Foursquare Labs found a 25 percent boost in in-store traffic for Whole Foods on the first day of its acquisition by Amazon.
It’s hard to know what that increased traffic looks like in terms of demographic data. But if you’re thinking that Amazon is trying to create appeal among lower-income consumers who previously couldn’t afford Whole Foods, think again: The price-slashing strategy has more to do with marketing than anything else. By announcing price cuts on the first day of ownership, Amazon was able to turn its Whole Foods acquisition into big publicity event. And when consumers came into the stores eager to see how prices had changed, they were able to witness other new features.
According to Business Insider, those changes included display stands featuring Amazon Echo and Echo Dots. In some stores, Amazon Lockers have been installed. Mobile point-of-sale solutions are replacing traditional checkout registers, and Amazon Prime members have access to special discounts, essentially turning Prime into a loyalty program that consumers pay to subscribe to.
Amazon used a surge in traffic to introduce the new Whole Foods to a large body of consumers, showcasing how the two brands have been merged to create an omnichannel shopping experience. But Amazon doesn’t really need Whole Foods to be more affordable for the grocery chain to serve its larger retail schemes. In fact, one could argue that lowering prices too much might dilute the value that drew Amazon to Whole Foods in the first place.
Image attribution: Caroline Attwood
Buying a Consumer Base, Not a Brand
Whole Foods’ lower prices were successful in boosting traffic, but they don’t offer a deep enough cut that the profile of the average Whole Foods shopper is going to change that much. That’s great news for Amazon, because it has no interest in rebranding the grocery chain. It already has what it wants: access to a highly coveted consumer demographic.
As Quartz points out, the Whole Foods brand has been extremely successful in attracting the “aspirational class” of consumers that seeks strategic purchases to identify its members as upwardly mobile. But instead of staking their reputation on high-end clothing and luxury cars, “the primary currency in this world is shared cultural knowledge,” per Quartz. Aspirational consumers are more interested in purchasing the $11 almond butter and flaunting their reusable Whole Foods grocery bags.
Analysis from Forbes backs this up, suggesting Amazon bought Whole Foods because of the demographics involved. If this business move were about building a large physical presence, the company might have pursued one of several other larger grocery store chains that were available to purchase around the same time. Instead, Amazon bought a grocery chain that is known for its rigorous demographic research when choosing its grocery store locations, almost always choosing locations in affluent neighborhoods filled with well-educated consumers.
Purchasing Whole Foods could be seen as the easiest way for Amazon to directly target its desired class of consumers and becoming an integral part of their daily lives. Combining Amazon’s locker service with such an essential industry as grocery gives consumers even more incentive to shop through Amazon: Whole Foods can function as a one-stop shop.
It’s likely that Whole Foods will continue to see small rebranding efforts take place over time. Already, the company is shifting away from locally sourcing products and featuring an inventory that is more consistent across the entire chain, which makes operating costs cheaper without hurting the brand too much. But if you’re expecting Amazon to turn Whole Foods into a grocery store chain with mass appeal, don’t hold your breath: With its groundbreaking grocery acquisition, Amazon bought exactly the consumer base it wants.
Featured image attribution: NEonBrand
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