Whole Foods acquisition could be game-changer

posted Sept. 1, 2017 2:12 p.m. (CDT)
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by / Heidi Clausen, Regional Editor | heidi.clausen@ecpc.com

It’s hard to imagine a time when most of us won’t pick up the lion’s share of our food from brick-and-mortar grocery stores, but the recent closure of the more than $13 billion acquisition of Whole Foods by Amazon, a huge e-commerce company based in Seattle, brought us one step closer to that intriguing possibility.

The takeover came as welcome news to 20-somethings, many who already order most of their groceries online, and it could be a game-changer for agriculture, especially food companies that have, until now, had difficulty securing physical shelf space for their products because they can’t afford the hefty fees.

Amazon had already been exploring the food delivery market with AmazonFresh, available in some parts of the U.S., London, Tokyo and Berlin. But the company’s purchase of Whole Foods takes its interest in food to a new level, providing Amazon access to Whole Foods’ more than 460 stores in the U.S. and the United Kingdom.

This is expected to have a ripple effect throughout the food chain, from the farm to the retail shelf, but the analysts’ opinions on the impact vary: There are those who say grocery stores aren’t going anywhere; older people, especially, will still want to stroll up and down the grocery aisles, sniff the produce and load their carts.

There also are those who say most of us would gladly give up this chore in favor of a virtual “cart” and the luxury of waiting at home for our food to come to us; they also say big-box supermarkets will be a thing of the past within a decade.

“I think it’s an extraordinary moment,” Mary Shelman, former director of Harvard Business School’s Agribusiness Program, said in an article written by Tom Martin and recently published by Alltech. “This could truly be a disruption rather than a change. ... Amazon, which had historically envisioned a world without brick-and-mortar stores, is now, in one fell swoop, making a significant run into that brick-and-mortar world.”

Shelman said food is the “least-penetrated category” in online shopping, and consumer perceptions could be a factor.

“For Amazon, the biggest challenge in delivering fresh products to your home is what everybody always says: ‘Oh, I don’t trust them. I want to go pick out my fruits and veggies and my meats myself.’ Whole Foods brings in that brand name that has value,” she said, adding that both brand names will gain an advantage.

What does all this mean for producers? It could be good news for small companies who have struggled to gain market share in the retail food industry because they can’t afford the “slotting fees” owed to supermarkets and big box chains in order to get space on the shelf. Innovation and creativity have suffered as a result of these fees, and the Amazon marketplace could provide new opportunities for companies to bypass these costs and reach consumers.

This acquisition could spell trouble for “Big Food,” which has been seeing declining sales and profits as more consumers reject traditional food brands and processed foods in favor of so-called natural products, Aidan Connolly, Alltech chief innovation officer, said in the article.

Connolly said agribusinesses can adapt to the new reality by becoming leaner, going direct and rebuilding their own brands and delivering “prosumer” values by addressing issues such as transparency and sustainability. (The term “prosumer” is used to describe consumers actively involved in the design, production and delivery of goods and services they consume.)

“Consumer sales over the Internet offer an opportunity for ‘Big Ag’ that was not available 20 years ago,” he said.

Traditionally, for many consumers, Whole Foods products have been out of reach. Hoping to draw them into the fold, Amazon last week lowered prices on some items at its newly acquired grocery stores by as much as about 40 percent. This is expected to be only the first of many big promotions throughout the grocery industry aimed at customer loyalty.

This merging of two retail giants likely is just the beginning, and we can expect grocery shopping to look very different in a decade. Producers and agribusinesses will need to stay on the forefront of this new era.

Perhaps a good indicator of what lies ahead was revealed in one frank response to an Alltech survey that asked millennials, “Do you think grocery stores are important?”

“Yes, they’re very important — for old people,” one young woman answered.

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