When Amazon.com acquired the food retail chain Whole Foods Market in the summer of 2017 (for $13.2bn), it stirred bafflement mixed with speculations: What is happening here? To what aim does the giant e-commerce retailer need physical stores of a natural and organic food retail chain? Customers were worried out of concern about what Amazon intends to do with the Whole Foods stores. (The chain has nearly 500 stores, the vast majority of them in the US, and fewer than a dozen in Canada and in the UK each.)
The leading speculation was that Amazon wanted the chain of Whole Foods only as a platform to develop its own concept of physical retail stores to complement its online retail offerings and services. It is well acknowledged that online retailing is not about to remove physical stores soon, and this is especially evident in the domain of food and grocery products (i.e., the share of food purchases ordered online is among the lowest). But there could be opportunities for creating connections and synergies between the technological capabilities of Amazon and its retailing activities, online and offline. For instance, the food stores of Whole Foods Market could be transformed into a future format of technology-driven stores — the format known as Amazon Go was mentioned at the time. An additional and related concern was whether in the process Amazon would maintain the focus of Whole Foods on healthy eating (e.g., organic produce, natural ingredients, no artificial flavour and colour additives, no preservatives).
At this time the concerns outlined above for Whole Foods have not materialised. The Amazon Go chain of cashier-free stores with app-enabled buying develops separately, and it still expands at a very moderate pace (from three in mid 2017 to 12-15 by the summer of 2019); the chain is behaving more like a market experiment at this stage. There have been reports that Amazon has a plan to open up to 3,000 Amazon Go stores by 2021, which Amazon is firmly denying (e.g., CNBC, 19 Sept. 2018, relying on Bloomberg). Whole Foods Market also remains a destination for natural and healthier food and other products (e.g., personal care). The retail chain has deviated in the past from its promise of providing healthier products (e.g., it experienced a crisis in 2009-2013) and it continues being subject to scrutiny and criticism on such issues to-date.
However, Amazon did make changes to the way Whole Foods is organized and operates that are alleged to have significantly altered the character of the stores: The culture and atmosphere in the stores have changed. Employees experience growing discontent since the chain was taken over by Amazon due to issues such as work overload, stress and employment conditions [see The Guardian, 16 July 2019]. Notably, Whole Foods was included every year among Fortune’s 100 Best Companies to Work For since the list’s inception in 1998 (entitled to the special ‘Legend’ status)[*]; but then, its appearance stopped after 2017. Assistance and advice to customers in-store have been reduced or disappeared. Meanwhile Amazon is pushing to promote membership in its Prime customer club, its Prime deals, and its products (e.g., fast Meal Kits).
Professors Dennis Campbell and Tatiana Sandino of Harvard Business School studied the changes introduced by Amazon and their influence on Whole Foods. They identify a clash between cultures: the data-driven approach of Amazon to efficiency and the customer-driven approach of Whole Foods built on employee-empowerment (“Amazon vs. Whole Foods: When Cultures Collide”, HBS Working Knowledge, 14 May 2018),
Amazon enforced strict rules and metrics for evaluating performance at the stores of Whole Foods; it has been using data to determine what, where and how products should be placed in the store. The employees had to comply with new guidelines and requirements how to do things; consequently they also had less time for interacting with shoppers, guiding and helping them in making better choices of food or other products. Amazon instilled a culture of centralised management which left much less leeway to managers and staff in stores in choosing suppliers and merchandise and how it should be displayed in each store. This state of affairs contrasts with the autonomy given formerly to regional and store managers at Whole Foods in making decisions on such matters, and empowering employees (referred to as “team members”) to make some decisions as well in the day-to-day activities of the store. (Note: The last time Whole Foods Market appeared on Fortune’s list, in place 58, the commentary cited “respect”, making employees “feel welcome”, and a chain that “appreciates” the contributions of employees as “key ingredients” of their culture.)
Nonetheless, the methods of Amazon have been successful in bringing down prices, that were partly caused by inefficiencies, in a continuous effort to make a greater number of products more affordable to consumers. Whole Foods may have had to pay in breaking-up relationships that stores had built in their communities with local farmers and other suppliers (lowering reliance on local suppliers appears to have started before Amazon came in).
Campbell and Sandino suggest that Amazon may have implemented its approach too aggressively, and that is should have kept more room for the judgement of the managers and staff running stores. There should have been a better balance between the power of big data resources in improving the offerings and performance of the retail chain and the tacit knowledge of local managers and employees who are more closely familiar with shoppers in their stores. Sandino proposes a management concept known as ‘structured empowerment’ wherein “a company standardizes operations but allows flexibility for employees to make their own choices in key areas where having high-touch contact with customers matters“.
The concept of Amazon Go remains in the background, relevant and valid; it represents a form of unmanned stores projected for the non-distant future. Currently Amazon Go stores sell mostly food items for quick consumption, meals on-the-go or for instant preparation etc. Yet this chain of the future is evolving and the development of more advanced technologies is in progress (e.g., Amazon is introducing an upcoming technology based on cameras, computer vision and AI that will exempt shoppers from scanning products they choose to buy, a concept named “Just Walk Out Technology“). It is hard to say now whether Amazon intends to reserve these technologies for Amazon Go or bring them one day also to stores of Whole Foods.
The impacts of the approach and methods imported by Amazon to the chain stores of Whole Foods Market may take different turns. It may affect the composition of the customer population (e.g., more emphasis on Prime members) as well as shopping patterns in the stores. The mix and priorities of merchandising, pricing, and the role of staff in the stores may all take part in shaping the behaviour of shoppers in-store, and as an extension also in the online platform of Amazon.com.
[*] “100 Best Companies to Work For”, Fortune (Europe Edition), 15 March 2017 (Vol. 175, No. 4), 2017 List p. 35, the Legends p. 48