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It’s been a year since Amazon (AMZN) closed its $13.7 billion acquisition of Whole Foods Market. The bombshell news once sent many other grocery stocks tumbling amid investor concerns. Some expected the e-commerce giant, which has changed the way people buy books, to disrupt how people shop for kale and cereals.
So here we are. One year after Amazon took over Whole Foods, the natural grocery chain has become a virtual mystery to analysts as Amazon’s earnings reports shed little light on key measures of its performance.
Whole Foods CEO John Mackey once gushed that the Amazon deal was “love at first sight.” He later admitted at a conference in February “if you want to stay in the marriage, you change.” How has Amazon changed Whole Foods? And what’s ahead for Whole Foods? Through interviews, surveys and third-party data provided by Second Measure, Yahoo Finance can provide some insights.
Whole Foods sales remain flat
Amazon’s heavily-promoted price cuts have attracted attention, but they didn’t necessarily bring a big boost to Whole Foods. Whole Foods sales since the acquisition have largely remained stable, with only low single-digit growth, according to data from Second Measure, a company that tracks consumer spending. The premium grocery store’s growth has been stagnant since 2015. New shoppers only account for 3% of its customers base.
Neil Saunders, the managing director of retail at GlobalData, sees no further decline in sales as a sign of progress. “If Whole Foods hasn’t been acquired by Amazon, we could probably see sales reverse much more sharply,” he said. The steep pricing strategy and limited investment in stores have kept the sales growth stagnant since 2015.
Amazon’s self-created shopping holiday Prime Day did bring a bump. This year, Whole Foods celebrated its first Amazon Prime Day by offering $10 Amazon credit to Prime members who spend $10 or more at Whole Foods from July 11-17. Whole Foods’ average daily sales during the promotion week were 5% higher than the average summer day.
The “Amazon Effect” on Whole Foods is really tied to the e-commerce giant’s Prime Membership. Amazon’s core subscription program now touts over 100 million users around the world. Those members accounted for more than half of Whole Foods sales in the U.S. In June 2018, 41% of Whole Foods new consumers were already Prime members, compared to 34% one year ago. However, the increase doesn’t necessarily mean the Prime sales and promotions are luring more shoppers. During that same time period, the percentage of Amazon Prime members among the U.S. population also increased to 32% from 27%.
Customers see some product changes
Yahoo Finance surveyed more than 2,000 Whole Food shoppers about their experience in the past year. Forty percent believe the price of products in stores aren’t really lower. Nearly half of those surveyed say Amazon has brought positive changes to Whole Foods.
The most popular feature in the integration is the discounts for Prime members at Whole Foods stores. Amazon has been gradually rolling out the perk since May. Now Prime members can enjoy an additional 10% off sale items in stores nationwide, plus exclusive weekly discounts on select items.
Meanwhile, Whole Foods has been reorganizing its shelves by removing and adding products. Instead of giving regional teams the autonomy to source local products, the company’s management team at its Austin headquarter now makes centralized buying decisions, in an effort to standardize the supply chain and reduce cost. From Nature Valley granola bars, Tropicana Orange Juice to Starbucks cold brew coffee, Whole Foods has opened its arms to common brand names found at other grocery chains like Walmart.
With consumer-packaged goods (CPG), Whole Foods now offers more options for shoppers. Travis Christensen, a Whole Foods shopper in Arizona, said the chain has emerged as his primary grocery store since Amazon’s acquisition. “I like Amazon bringing value proposition rather than just premium and organic. I use Prime discounts and appreciate the sprinkling of mainstream products,” Christensen wrote in the survey.
But introducing more CPG, a different approach from Whole Foods’ long-standing reputation for sourcing natural and organic products locally, has disappointed some loyal customers.
“Local brand items are disappearing from the shelves. This was something that made me loyal to Whole Foods in the past, but is making me rethink if I want to continue shopping there versus other grocery stores in the future,” John Dixon from Louisville, Kentucky told Yahoo Finance.
Some longtime employees have also raised eyebrows at the push. Brittain Ladd, a retail consultant who had worked for Amazon, believes phasing out some locally sourced products is a necessary pain for Whole Foods.
“The way Amazon could reduce cost is standardizing the assortments across all stores and relying on a nationwide distribution model versus the locally sourced model,” said Ladd.
What’s next for Whole Foods
Analysts believe Amazon has delivered on its plan for Whole Foods in the first year of the transition, by focusing on reorganization and integrating Prime membership into the shopping experience.
The streamline and standardization process is ongoing. Whole Foods has been working on consolidating its 13 regions across the country, Yahoo Finance has learned.
Customers can expect more changes on the aisles, too. Amazon is expected to introduce more consumer packaged and private label products, a move that analysts believe would open the premium store to a larger customer base.
“Amazon is performing a lot of analysis to identify what products to put on their shelves to bring the most customers, not to retain current customers,” said Ladd.
With all the online and offline shopping behavior data Amazon could collect, Saunders thinks it will take a more personalized approach to making promotions and discounts more relevant to shoppers.
More moves could also be expected on delivery. In February, Yahoo Finance first reported Amazon’s move to consolidate Amazon Fresh and Prime Now to work with Whole Foods. In the past year, both the delivery startup Instacart and Amazon have been sending Whole Foods goods to people’s doorway.
“Amazon has a bucket list of things it would like to do, but it’s not gonna do them all at once. It has to learn how to cope with the existing business,” said Saunders. “They’re a bit slower than they usually are, a year is not a long time frame for astounding changes, so there is definitely more to come.”
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