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Following reports from the Wall Street Journal about the “Amazonization of whole foods,” amid new pilots in which ShopBots (yes, that’s a real term) pick up Pepsi and 3,800-square-foot Amazon grocery kiosks sell Doritos, Whole Foods Market CEO Jason Buechel surprisingly doubled down on the validity of these ideas, via a message on LinkedIn.
In the mail, Buechel shared a video of the ShopBot test at a Pennsylvania store and said, “Whole Foods Market has always prided itself on offering a wide selection of natural and organic products, but we understand that customers appreciate the convenience of one-stop shopping. Last week, our team introduced a new “store within a store” concept at the Plymouth Meeting, PA location… We built a new 10,000-square-foot automated micro-fulfillment center in the back of the store’s home at our Pennsylvania location, giving customers the the opportunity to add items they can’t find in the store – all at once.”
One watch of the video above, and most readers will undoubtedly agree: Buechel’s vision is definitely no longer your grandparents’ Whole Foods. Digital screens with Kraft Mac & Cheese in the pasta aisle? Green and white mini robots wandering around what looks like a clean room?
WTF?
The test is so bizarre that you have to wonder: why would Buechel publicly support it? Because according to this expert, this idea is dead on arrival.
The strategic disconnect
Certainly, the appeal of the idea is there: Why would a Whole Foods shopper have to make more than one trip to get his or her groceries? For example, I can almost imagine one of the vaunted internal Amazon press releases behind this idea: “Opening soon: A Whole Foods with all the same great items… plus all the sweet brand-name treats you crave!”
But here comes the problem.
If the mass market actually wanted organic kale and Pepsi in the same store visit, don’t you think the buyers at Walmart, Target and Kroger would have already figured that out? These are some of the smartest operators in retail, and they’ve had decades to devote more shelf space to natural and organic products.
They haven’t, and the simple reason for that is because the mass market hasn’t asked for it. If it had called for it, you can bet all three of them would have done it already.
When I ran frozen food at Target, we spent countless hours analyzing category performance, understanding customer shopping patterns, and mapping assortment strategies. The data tells you pretty quickly what customers want and what they don’t want. And what Amazon seems to be missing here is that Whole Foods customers chose Whole Foods precisely because it wasn’t your average mass-market grocery store.
Meanwhile, bucking this trend, Sprouts Farmers Market opened 30 stores in 2023. Whole Foods opened eight. Sprouts is executing on a clear strategy to be a differentiated natural food retailer, and as a result they are growing. Whole Foods, on the other hand, is experimenting with robot-collected Pepsi.
At best, it’s either a sign of an ayahuasca-induced identity crisis in Austin, or at worst, it’s a sign that Amazon has absolutely no idea how to crack the grocery market, which leads to my next point.
The sunk cost trap
This next statement may be hard to believe, but there is actually something more disturbing in the Journal’s reporting than robots delivering sugar-flavored water. Citing market research firm Numerator, the company stated that Amazon’s market share in the supermarket sector has still not exceeded 4% since the acquisition of Whole Foods. For comparison: Walmart’s market share is estimated at about 25%.
Additionally, Whole Foods says, again according to the Journal, that sales have grown more than 40% since Amazon acquired the chain, but that averages out to only 5% growth per year, which is paltry considering inflation (a big factor in food sales) over the same period. on average about 3.6% per year. Or put another way, a 1,400 basis point spread between inflation and growth is nothing to write home about, especially when the acquiring company is one of the most formidable e-commerce companies in the world.
But what is the reaction against this background?
Instead of expanding on what made Whole Foods special, Amazon is essentially trying to turn it into Amazon Fresh 2.0. Amazon is clearing out coffee shops and seating areas to install convenience store kiosks. It hides robots in the back room to get Tide Pods. While corporate workers worry about new concepts like “Amazonification” and return-to-the-office mandates.
Talk about a classic case of trying to fit a square peg into a round gluten-free bagel.
What made Whole Foods valuable
Buechel and Amazon forget that Whole Foods has a brand equity that took more than 45 years to build. Customers know that when they walk into a Whole Foods, they don’t have to examine every ingredient label. They do not have to wonder whether the products meet certain quality standards. This trust is part of the brand’s entire value proposition.
When you add Pepsi and Doritos and Kraft Mac & Cheese to the mix, you put the burden back on the customer. Suddenly customers are standing in the aisle wondering, “Wait, do I want this version that’s better for me or the regular supermarket version?” That cognitive load matters, and without that peace of mind it could erode one of the things that made Whole Foods special in the first place.
And as a result, therein lies the main strategic problem of this strategy.
The Amazonification fork in the road
Play it out.
For the sake of argument, let’s say this test is successful. So is Amazon stepping on the gas pedal as it redesigns its Whole Foods stores across the country to sell Oreos alongside hemp seeds?
Let’s say it is. What then?
First, Whole Foods is becoming less ‘Whole Foods’ and starting to converge on the average of every other grocery store’s average experience. Sprouts is picking up the vacated share, and Amazon continues to fight an uphill battle in the supermarket because the points of differentiation, i.e. what made Whole Foods so special, are gone.
Second, grocery shopping is a local game, which is why Whole Foods has been around for so long as a beneficiary of a second-planned grocery trip. If Amazon is going to play the premier trip game, not only will they have to displace the incumbents (something many chains have tried and failed, including Amazon – see Amazon Fresh 1.0), but Amazon will also have to do it from a place of major strategic disadvantage in terms of store numbers.
Whole Foods only operates just over 500 stores in the US. Walmart has more than 4,600. Kroger has more than 2,700. Aldi has more than 2,500. And let’s not forget Dollar General, which is trying to achieve more in the supermarket itself, as well as in its more than 20,000 stores.
Barring an acquisition, it could take decades for Amazon to reach the scale necessary to compete effectively, let alone which could end up feeling like nothing more than a me-too grocery store experience.
What if there is no way back?
I asked Amazon if the robotics are proving successful. How does the company plan to differentiate itself from the rest of the food industry in the long term, especially if it starts carrying the same items as everyone else?
To its credit, Amazon’s response was very clear. Under certain conditions, they said that items that do not meet Whole Foods Market quality standards will not be available on Whole Foods Market shelves, and furthermore, the purpose of the automation test is simply to allow customers to continue purchasing their favorite natural and organic products from Whole Foods Market and to get a broader product selection from Amazon all at once or online, saving them time and money.
Don’t get me wrong. If Amazon wants to lean on the “milk with your electronics” concept that Andrew Jassy mentioned earlier this year using robot fulfillment within Whole Foods locations for broader Amazon deliveries, I can get behind that strategy. Given the location of Whole Foods stores, often in affluent urban and suburban areas, that could create real value for the overall Amazon ecosystem.
However, that’s a very different strategy than trying to get Whole Foods shoppers to buy Spicy Sweet Chili Doritos in the lobby or through digital shelf ads in the store. It’s a strategy that works when you’re talking about building baskets online, but it’s a bit like trying to have your cake and eat it too in the retail environment.
Furthermore, once the genie is out of the bottle, it can be very difficult to put it back in.
The supermarket sector is also as difficult as it can be
All of this brings me to the most important point of this article: you can’t force your way into the grocery industry.
Whole Foods had something special. It had customers who were willing to pay higher prices because they trusted the brand. It had a culture that attracted passionate employees who believed in the mission, and it had a clear point of differentiation in a crowded marketplace.
Unfortunately, Amazon now appears to be on the verge of systematically dismantling the system.
Because all roads lead to the same place here: Whole Foods looks less like what customers know it to be today and more like just another grocery store with no real points of competitive differentiation. If that happens, what exactly did Amazon pay $13.7 billion for?
Just over 1% annual growth and the long-term option of displacing local incumbents: what history has shown this to be the toughest retail gamble out there?
The real answer and biggest fear, if Amazon continues down this path, is that one day we will all look back and realize that Amazon once paid a premium for Whole Foods’ brand equity and then gave us all a case study in how to destroy it.
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