In 1976, Whole Foods Market co-founder, John Mackey, dropped out of college and moved into a vegetarian co-op in Austin, Texas. Two years later, at the age of 25, he raised $45000 from friends and family to open his own natural foods store. The original store was called “Safer Way” – a deliberate attack on the grocery giant Safeway. The store was on the main floor of an old house that John bought with his then girlfriend and co-founder Renee Lawson Hardy.
In 1980, Safer Way partnered with competitor Clarksville Natural Grocery to open the first “Whole Foods Market”. From 1984 to 1992 Whole Foods took on venture capital to fuel expansion to Dallas and Houston. Then in 1992, Whole Foods Market went public, giving them the capital to expand across the United States, Canada and the U.K. through acquisitions, while continuing to open new stores from the ground up.
Today, there are 465 Whole Foods Markets across the United States accounting for just 1-2% of the nation’s grocery revenue.
On June 16, it was announced that Amazon will acquire Whole Foods Market in an all-cash transaction valued at approximately $13.7 billion. For the time being, Whole Foods Market will continue to operate stores under their brand and John Mackey will remain as CEO.
Amazon’s mission statement reads: “We seek to be Earth’s most consumer-centric company”. Arguably, their actual mission is to be Earth’s most consumer-dominant company. If you want to take a cut of all economic activity, you need a foothold in groceries as the category accounts for about 20% of consumer spending. That is why Amazon has been experimenting in the space for over a decade, first with Amazon Fresh and more recently with Amazon Go.
Amazon’s key to control the consumer market though is Prime. With Prime’s reliability and convenience, Amazon has created a moat around consumer goods that doesn’t depend on price because customers don’t even bother to check anywhere else – that is except, maybe, the grocery store. Eliminating the opportunity for Prime customers to be reminded that other retailers sell consumer goods, potentially at lower prices, is just another reason for Amazon to get into the brick-and-mortar grocery game.
The Amazon acquisition is almost certainly the unfortunate death of Whole Foods Market. Amazon has no passion to be a grocer let alone a natural foods grocer. They are a services company that is purchasing a $13.7 billion tactic and they aren’t done yet.
Let’s decompose the process a consumer goes through to purchase groceries:
- They must decide what they want to eat
- They must create a list of the required ingredients
- They must take stock of what they have in their pantry
- They must purchase the list of outstanding items
- They must transport the groceries from the retailer to their home
Even with the purchase of Whole Foods, Amazon has only addressed the last 2 elements of the consumer process. I’m interested to see if they target a meal planning company like Platejoy, to control the remainder. After all, if your mission is to be “Earth’s most consumer-centric company” you might as well own it all.