Amazon's Appetite: Heaven or Heartburn for Consumers?
Amazon’s $14 bn acquisition of US premium food retailer Wholefoods, announced in June this year & finalized in August, can hardly be considered fresh news any longer.
An all-American panel of ‘food innovators’ (entrepreneurs, investors, farmers, chefs and investors), convened and interviewed by Food & Tech Connect, an online platform for the food tech & innovation sectors, was unequivocally (and one might say, naïvely) enthusiastic and amazed by the announcement.
As the first wave of excitement over this mega-deal has ebbed away and the dust has settled, it is time for a closer look at the two corporations involved and for more sober, critical evaluation of its longer term implications on the food retail landscape.
Since its inception in the mid-90s Amazon has become the biggest online retailer worldwide, the most valuable retailer in the US (surpassing Walmart in 2015) and a household name, also for consumers outside of the US.
“At first, the company looked like a bookstore; next, it became a mass retailer; later, for somewhat obscure reasons, it transformed into a television and movie studio. It seemed to be growing horizontally, by learning to sell new kinds of products. But Amazon wasn’t just getting wider; it was getting deeper, too. It wasn’t just selling products but inventing a new method of selling; behind the scenes, it was using technology to vertically integrate nearly the entire process of consumption.”
By acquiring the brick & mortar stores of Whole Foods it addresses the challenges of fresh food delivery, an area in which Amazon had only slim market shares. But it does not seem to stop there:
“It’s increasingly easy to imagine that a few decades from now, we’ll tell our kids about how we used to “go to the store”; they’ll look at us and say, “What?” Earlier this month, Amazon filed a patent application describing large, multi-story drone towers in urban centers. Probably, in the future, such buildings will seem unremarkable. The hive-like towers will have loading docks and warehouses on the lower floors and bays for drones higher up; the drones may be repaired and supplied by robots. “There is a growing need and desire to locate fulfillment centers within cities, such as in downtown districts,” the patent application says. How else would your wine beat your guests to the door?”
Whole Foods’ story started more than a decade prior to Amazon’s, in the early 1980s. While their initial business models could not have been more different, what the companies’ founders, Jeff Bezos and John Mackey, seem to share is a great deal of determination and single-mindedness.
“But Whole Foods was supposed to be different.
John Mackey, the company’s chief executive, has long argued that Whole Foods is wired differently — that it runs on a “conscious capitalism” model that outsmarts the competitive pressures of our for-profit system through creativity and innovation.
In Liberating the Heroic Spirit of Business: Conscious Capitalism, Mackey argues that his conscious capitalism model achieves success by honoring not just shareholders but all stakeholders, including workers, communities and the environment.”
In stark contrast to these claims, Mackey considered “unions akin to herpes and state regulation little more than ‘crony capitalism’.”
Over the past several years the competition caught up with Whole Foods and fewer customers were willing to pay its premium prices for produce which they could get cheaper elsewhere and in the same quality.
“Mackey was right about one thing: people do love to shop at Whole Foods – or at least, they used to. These days that demon called competition has caught up with the Austin-based company.
The future of conscious capitalism appears equally bleak. To placate shareholders and mitigate declining same-store sales, last year the company jettisoned its unique purchasing model that wove together a network of autonomous regional production hubs of small farmers and momand-pop food startups.
It’s now prioritizing a centralized, bulk-buying strategy that looks a lot like, well, Walmart.“
It also initiated a $1.25bn share buyback program and has promised to cut costs by $300m and raise same-store sales 2% by 2020.”
The effects of the deal on Whole Foods’ business model & supply chain are already visible in the stores:
Prices of some products have gone down; Amazon’s own products are on offer; sales reps & promoters from suppliers are no longer allowed in-store; and local stores no longer have the authority to include regional products into their assortments.
In addition to Amazon’s presence, the arrival and expansion of German discounters Lidl and Aldi, respectively, in the market, will induce dramatic shifts in the US grocery retail landscape. One of the most significant impacts will be the increased cost pressure on the suppliers/producers of agricultural products to those retail giants.
But what will this mean for the food value chain and retail landscape in Europe, in particular?
The first indicator and reaction to the deal was that the share prices of competing retail giants (UK’s Tesco, Germany’s Metro) took a dive.
And even though there are no signals of Amazon acquiring any of the European retailers, it already runs trials for fresh-food delivery in selected German regions and has announced plans to increase its workforce by 2.000. It already has invested Euro 8 bn in its infrastructure in Germany since 2010.
Germany’s Rewe, too, has announced significant investments into its online retail & fulfilment capabilities and Metro is busy testing new store concepts & retail strategies.
More on this in The Guardian's coverage of the deal
For some such a fully vertically integrated consumption model may seem like consumers’ heaven and a true expression of Amazon’s belief that 'the (American) consumer will never say no to cheaper products, more variety and better convenience':
Competitively-priced fresh ingredients selected from an online-store with seemingly unlimited variety and choice; delivered to the doorstep by an invisible fulfilment apparatus; prepared in a smart home aided by Amazon-orchestrated appliances.
For others, this may look & sound like a dystopian vision in which consumers are even further removed from the production process, where the preparation and consumption of food is disembedded entirely from the natural, social and cultural context in which food is produced.
The romantic notion that farmers’ markets or the survival, or rather, return of independent retailers can be the solution and the alternative to this dystopia, is not going to help. There are simply too many hungry consumers to be fed.
But there are other initiatives which may point to more promising, purposeful alternative paths of action, one of which is the Food Citizen Project, which we are going to deal with in an upcoming hep. blogpost.