Business And Management IA (SL)

To what extent the takeover by Amazon over Whole market has

been successful?

Candidate Name: Obada Naser Mohammad Thyab

Candidate Number:

Candidate Session Number: May 2018

Due Date: 15/3/2018

Candidate No:

Circulation: Ib Business And Management Examiner

Word Count:
Table Of Contents

1. Introduction………………………………………………………………………………
2. Statement Of Objectives.…………………………………………………………………
3. Commentary……………………………………………………………………………………..
4. Conclusion And Recommendations…………………………………………………………...
5. Bibliography……………………………………………………………………………………….
 6. Introduction

Amazon is an American electronic commerce and cloud computing company, it was founded by Jeff
Bezos on july 5, 1994. Amazon is a tech giant and the largest internet retailer in the world a it is measured
by market capitalization and revenue. In 2017 Amazon acquired Whole Foods Market for $13.7 billion,
which extremely increased Amazon’s presence as a brick-and-mortar retailer. Associated Press (2017).

Commentary

Amazon has finally got Whole Foods Market for $13.7 billion, Amazon takes a quick aim at the Chain’s
Whole Paycheck image and it is bringing it in the line as an Amazon’s tradition of lowering the price and
its aim is to earn and lock customer loyalty. yes , it means that Whole Foods brands will be available on
the Amazon site Adam .H (2017). The company aims to make Amazon Prime as a reward program for
Whole Foods Program, and as always it offer members a special discounts. The deal also might change
the way people shop for groceries.

Impact of takeover

*It makes Amazon a national grocery competitor overnight, there is always an intensity of competition
after all building any retail chain takes a long time and due to the intensity of competition, and low
margins,building a grocery chain takes even longer. Amazon would have spent decades trying to create its
own chain Strategic Department (2017). Now it won't lose all that time, and it won't give competitors
more time to figure out their strategies. *Now Amazon can get the necessary "deal dollars" to compete in
groceries, few people know that no grocer make money selling groceries, Revenue do not cover the cost
of inventory, buildings and labor. Selling groceries loses money, grocers survive on manufacturer "deal
dollars" one of the reasons Whole Foods are so high is they stock less of the mass market goods and
receive fewer deal dollars. Now Amazon can use Whole Foods to increase its volume in all products and
dramatically increase its deal dollar inflow. *Amazon obtains a grocery distribution system, Grocery
distribution is unique. For many years grocers have worked his best to create the shortest, most efficient
distribution of foods with the lowest inventory. Amazon will obtain the corporate infrastructure of a
grocer, without having to build one on its own Strategic Department (2017). All those buyers,
merchandisers, real estate professionals, local ad buyers, etc. are there and ready to execute. *Amazon
obtains great locations, people must know that Whole Foods now has 460 stores, and almost all the of the
stores are in great locations Whole Foods focused on upscale, growing and often urban or suburban
locations, all of this are great for Amazon to grow its distribution footprint.*The deal is cheap, $13.7B is
only 65% of the cash Amazon had on hand end of last quarter. And Amazon has only $7.7B in long-term
debt. With a $460B market cap Amazon could easily take on more debt without adding significant
financial risk. But more importantly, Amazon has the amazingly cheap currency that is Amazon stock.
Even after swapping Amazon shares for whole foods shares Amazon lowers the price by 80%, yet
Amazon isn’t spending real dollars, it is using its stock, which is an incredible move for its shareholders
Strategic Department (2017).

SWOT Analysis

Strengths :
● Strong distribution network – Over the
years Amazon and Whole Foods
Acquisition has built a reliable
distribution network that can reach
majority of its potential market.
● Highly successful at Go To Market
strategies for its products.
● Reliable suppliers – It has a strong base of
reliable supplier of raw material
● Strong Brand Portfolio – Over the years
Amazon and Whole Foods Acquisition
has invested in building a strong brand
portfolio.
Weaknesses:
● The profitability ratio and Net
Contribution % of Amazon and Whole
Foods Acquisition are below the industry
average.
● Investment in Research and Development
is below the fastest growing players in the
industry.
● Not highly successful at integrating firms
with different work culture.
● Financial planning is not done properly
and efficiently.

Threats : Opportunities:
● Rising raw material can pose a threat to ● Stable free cash flow provides
the Amazon and Whole Foods Acquisition opportunities to invest in adjacent product
profitability. segments.
 ● The company can face lawsuits in various
markets
● Imitation of the counterfeit and low
quality product is also a threat to Amazon
and Whole Foods Acquisition product
especially in the emerging markets and
low income markets.
● As the company is operating in numerous
countries it is exposed to currency
fluctuations
● The new technology provides an
opportunity to Amazon and Whole Foods
Acquisition to practices differentiated
pricing strategy in the new market.
● Decreasing cost of transportation because
of lower shipping prices can also bring
down the cost of Amazon and Whole
Foods Acquisition products thus - boost
its profitability or pass on the benefits to
the customers to gain market share.

Business strategy
By the working together with Amazon and integrating with several key areas, they can lower the prices
and double down on the mission and reach more people with Whole Foods Market high-quality of natural
and organic food. The CEO, John Mackey told, that he can't wait to show the customer of what’s possible
when Whole Foods Market and Amazon innovate together. Amazon started by lowering the prices on a
selection of the best-selling grocery staples, they will make Amazon Prime the customer rewards program
at Whole Foods Market and they will continuously lower prices. There will be a significant work and an
opportunity ahead and the CEO of Amazon Jeff Wilke said that they are thrilled to get going Antoine .G
(2017).

Whole Food has already sold around $1.6 million worth of its private-label products through Amazon that
is just one month after its acquisition. By the time Amazon sold approximately $500,000 of Whole foods
products in one week, and while that dropped to around $300,000 for each of the next two weeks due to
stock issues, sales bounced back in the fourth week. A perfect thing is that Whole Foods' reputation for
quality puts it in a unique position to tackle online grocery Daniel .K (2017). Consumer’s issue is the
online grocery because of the inability of choosing their own product, and many grocers has struggled this
issue, but Whole Foods is known for its high-Quality products, meaning consumers are more confident in
purchasing the company's offering online.
Amazon acquired Whole Foods for $13.7 billion on June 16, 2017, and now, over seven months later, the
purchase has appeared on Amazon's annual balance sheet (CNBC ,2017).

Roughly 70% of the cost was accounted for by goodwill, implying that Amazon obtained Whole Foods to
a great extent for its intangible value, instead of its present operations. This solidifies the widely held
perspective that the e-commerce titan acquired the grocer in order to make a strong entrance into grocery,
both online and in-store, which is smart, as Whole Foods had a somewhat negative working salary in Q4
2017 Daniel .K (2017).

Following is the evaluation of this meger:

● Amazon has discovered some accomplishment by bringing down the entire prices, selling its
private-label goods on Amazon.com, and more.Once the acquisition close, Amazon promptly
executed value cuts at Whole Foods on products like bananas and avocados, knocking up its
store movement. Meanwhile, Amazon sold an expected $10 million worth of Whole Foods
branded items on Amazon.com in its first four months. While these moves have drawn
 achievement, Amazon has additionally included Amazon Lockers and Reverberate items to a
few areas, as it's endeavoring to capitalize on its all of a sudden expanded brick-and-mortar
network.

● However, in the last six months, the grocer's prices, quality, and stock administration have
been questioned. Whole Foods costs have really gone up following the obtaining, and a few
shoppers have noticed a drop in quality and ineffectively loaded racks, which workers have
complained about as well. The grocer is also moving away from the local sourcing its
reputation was built on. Not all of these issues have been caused by Amazon, however it
should redress them going ahead in the event that it would like to prevail in basic need
Daniel .K (2017).

Amazon isn't close to done with changing and incorporating Whole Foods.

● The e-commerce titan still plans to use Prime as Whole Foods' rewards program.This was a
piece of Amazon's unique gets ready for the merchant, and will give Amazon significantly
more information on what buyers buy, especially considering that Whole Foods consumers
and Prime subscribers overlap Daniel. K (2017).

● Amazon presently can't seem to completely coordinate Entire Sustenances into

AmazonFresh.It's still evaluating how Whole Foods and AmazonFresh can best work
together, Amazon CFO Brian Olsavsky said in its most recent earnings call, yet there will
probably be some sort of coordinated effort going ahead as Amazon tries to overcome online
basic need Daniel .K (2017).

The relationship between Amazon and Whole Foods going to be an important part of the global e-
commerce landscape in the future. BI Intelligence, Business Insider's premium research service, has
gathered a few web based business depictions, which together feature the most striking developing
markets in different districts Daniel .K (2017).

Conclusion
The whole foods appears to be Amazon experimenting with the grocery business. Grocery businesses
should feel threatened If Amazon manages to transform a massive range of customers to top, succeeds in
revamping the supply chain and effectively starts delivering groceries, it's going to signal for a new
generation for supermarkets. There would be not anything preventing Amazon from taking up the grocery
business in this state of affairs Writepass (2018).
Bibliography:
1.
Associated Press (2017) - It's a Done Deal: Amazon Takes Over Whole Foods
http://www.foxbusiness.com/markets/2017/08/28/its-done-deal-amazon-takes-over-whole-
foods.html
2.
Adam .H (2017) - The 9 Reasons Why Amazon Buying Whole Foods Is A Good Idea
https://www.forbes.com/sites/adamhartung/2017/06/16/the-9-reasons-why-amazon-buying-
whole-foods-is-a-good-idea/#5dca7e636f15
3.
Strategic Department (2017) - Amazon and Whole Foods Acquisition Swot Analysis Matrix
(strengths, Weakness, Opportunities, Threats)
http://fernfortuniversity.com/term-papers/latest/amazon-whole-food.php
4.
Antoine .G (2017) - Amazon Lays Out Its Whole Foods Strategy And Shakes Up Wall Street
Anew
https://www.forbes.com/sites/antoinegara/2017/08/24/amazon-lays-out-its-whole-foods-strategy-
and-shakes-up-wall-street-anew/#3201fed756f1
5.
Daniel .K (2017) - Whole Foods' Sales Soar on Amazon
http://www.businessinsider.com/whole-foods-sales-soar-on-amazon-2017-10
6.
Writepass (2018) - Strategic Analysis (swot and Five Forces) Of Amazon Inc – The Writepass
Journal
https://writepass.com/journal/2018/1/strategic-analysis-swot-and-five-forces-of-amazon-inc/

Appendix
Supporting Document 1.
Why Amazon Bought Whole Foods

THOMPSON, D. (2017, 6 16). Why Amazon Bought Whole Foods. From the ATLANTIC:
https://www.theatlantic.com/business/archive/2017/06/why-amazon-bought-whole-
foods/530652/
Mario Anzuoni / Reuters DEREK THOMPSON JUN 16, 2017
The retailer’s $14 billion bet isn’t just about the future of food. It’s about the future of commerce—
especially for rich urban consumers.

Amazon announced on Friday morning that it’s buying Whole Foods for just under $14 billion, the
retailer’s largest acquisition ever. The purchase holds implications for the future of groceries, the entire
food industry, and—as hyperbolic as this might sound—the future of shopping for just about anything.

But let’s not get ahead of ourselves. At the simplest level, the deal represents a straightforward
confluence of interests. Amazon needs food and urban real estate, and Whole Foods needs help.

The e-commerce giant has been expanding into groceries and physical locations, including bookstores,
ironically working itself back into the brick-and-mortar business that it’s also disrupting. Whole Foods,
meanwhile, offers the biggest name in yuppie groceries and a fleet of urban locations, which can double
as Amazon warehouses. Meanwhile, the grocer is in a tailspin, its stock price cascading as revenue
growth has fallen every year since 2012. Investors had for weeks been pushing the company to sell itself
to a larger grocer, like Kroger. That Whole Foods ended up with Amazon is poetic justice, considering
that, in 2015, CEO John Mackey said Amazon’s move into grocery delivery would be “Amazon’s
Waterloo.” Doubters of Amazon’s strategy can point to the fact that groceries are a terrible, low-margin
business. That’s true—almost as terrible and low-margin as e-commerce, where Amazon has already
demonstrated that it can hypnotize Wall Street’s myopic financiers, while it spends tens of billions of
dollars building a global warehousing and delivery infrastructure for a shopping future that is moving
online. In short, Whole Foods was in a free fall, and Amazon is the perfect net to catch it.

That’s the most straightforward analysis. But then again, Amazon always seems to be not just several
moves ahead of its competitors, but playing another game entirely—chess versus checkers, as they say—
so it’s worth thinking through some of the more long-term, hypothetical implications of this deal.

First, this is about food as a delivery service. Amazon understands that the most important value in
American retail today is what’s is technically known as “consumer convenience” and what is commonly
observed as “human sloth.” E-commerce is soaring and food-delivery businesses are taking off because
human beings are fundamentally lazy and they don’t want to leave the couch to buy stuff. That’s why
grocery stores and restaurants are seeing fewer shoppers and diners passing through their shops, as
Americans are ordering more of their produce and meals online. A study commissioned by the market-
research firm Euromonitor for Blue Apron’s public filing projects that the online market is projected to
grow 15 times faster than the rest of the restaurant business through the end of the decade.

In the last few years, Amazon has expanded its online grocery business, AmazonFresh, but it hasn’t quite
mastered online groceries the same way it’s mastered books and media. With Whole Foods, which will
continue to operate under its own name, an Amazon Prime subscription might operate just like Costco
membership. Maybe Prime members would get deals on Whole Foods produce, and they could elect to
have the fresh veggies and organic dips delivered to their homes and apartments. The Whole Foods
purchase is a $14 billion bet on the future of food that comes in boxes.

Amazon is terrifying for its competitors in part because its low-margin business pulls each industry it
dominates into a kind of deflationary whirlpool. If Whole Foods follows the Bezos playbook, shoppers
can expect prices to fall, and investors will expect revenue to rise. Indeed, news of the partnership sent
grocery competitors’ stocks plummeting. Stocks for Kroger, Costco, and Dollar General all fell more than
six percent within the hour. The merger might be even worse news for Instacart, the grocery-delivery
service that has had a close relationship with Whole Foods.

Second, this is about Whole Foods as a distribution hub—and Amazon as a physical retail presence.
Several analysts have said that Whole Foods’ urban and suburban locations are so valuable for Amazon’s
delivery business that the deal could be worth it even if the grocer all but stopped selling food. “Amazon
did not just buy Whole Foods grocery stores. It bought 431 upper-income, prime-location distribution
nodes for everything it does,” tweeted Dennis Berman, the Wall Street Journal’s financial editor. Amazon
is trying to become Walmart—not just an online megalith, but also a physical retail powerhouse with
dynamic pricing and stocking strategies—faster than Walmart can become Amazon.

In a way, this strategy continues a pattern I wrote about several years ago, which is Amazon following in
the footsteps of the last century’s retail behemoth, Sears. That company rose to prominence with its 500-
page “Consumer’s Bible,” which popularized the mail-order business. But in the early 1900s, as families
moved into cities, Sears followed, building more than 300 stores between 1925 and 1929 that specialized
in the hardware needs of the growing middle class. Amazon, too, rose to prominence with a browsable
couch product—its website and delivery service. But the future of its business may be more urban and
suburban stores that both hold merchandise for delivery and permit consumers to shop. The future
sometimes looks like a familiar reconstruction of the past.
Third, this is about Amazon as a “life bundle,” particularly for affluent Americans. Several years ago, I
predicted that Amazon Prime was becoming the cable bundle of the future —an annual subscription to a
fleet of diverse services that gave the retail company a dependable revenue stream and a growing, devoted
customer base. Indeed, more than half of American households with income over $100,000 are already
Prime subscribers, and they spend more than $1,000 a year with it. With Whole Foods, where wealthy
families regularly spend$500 a month, Amazon could expect its richest customers to spend thousands of
dollars a year through Amazon. As Whole Foods customers are urged to sign up for Prime—and as Prime
customers get enticing deals at Whole Foods—Amazon’s penetration of the affluent yuppie market
should grow (even as it offers discounts to lower-income Americans).

After today’s announcement, several people on Twitter joked that between Prime and Whole Foods,
Amazon may now account for a majority of some urban Millennials’ discretionary spending. What’s not a
joke, however, is that Amazon’s life bundle, like TV’s cable bundle, is fundamentally about the
merchandizing of convenience, which is often indistinguishable from sheer human laziness. Driving to
the movies and parking is a pain, and cable offered several cineplexes worth of video offerings on the
couch. Similarly, driving to the grocery store, finding parking, seeking out the produce section, and
waiting several minutes in Line 6 is a pain. What’s not a pain? Lying on your couch, watching Downton
Abbeyon Prime Video, and shouting to your Amazon daemon, “Alexa, I need six heirloom tomatoes and a
bottle of extra-virgin olive oil for tomorrow’s delivery.” Choose your narrative: Amazon is winning,
because Americans are so harriedtoday they don’t have time to shop, cook, or dine out; or deep down, the
human race tends toward sloth, and the company is building a global delivery system on the scaffolding
of mankind’s indolent nature.

Supporting document 2.

Amazon Just Got a Lot More Aggressive With Whole Foods Market

SHEN, L. (2018, 2 8). Amazon Just Got a Lot More Aggressive With Whole Foods Market. From
FORTUNE: http://fortune.com/2018/02/08/amazon-whole-foods-prime-now-delivery-
supplier-fees/
By LUCINDA SHEN

February 8, 2018

Five months after snapping up Whole Foods, Amazon is moving quickly into the grocery delivery space.
On Thursday, Amazon announced plans to offer Prime customers free two-hour delivery on Whole Foods
goods in some locations, through Prime Now. In doing so, the company is allowing customers to purchase
groceries from Whole Foods through the $12.99 a month Prime subscription—canceling the need for
consumers to spend another $14.99 to access Amazon Fresh.

It’s yet another move on Amazon’s part to make its grocery segment more attractive to consumers. After
acquiring Whole Foods in August, Amazon immediately announced plans to cut prices—giving the brick-
and-mortar retailer with a reputation for selling expensive goods something of a boost. The news sent
waves through the traditional grocery industry.

But while costs are going down for consumers, the pain is being felt by some of Whole Foods’ suppliers.
According to the Wall Street Journal, the chain is asking its suppliers to pay more to feature their goods
in the supermarket’s most visible shelving spaces. The move will affect most of Amazon’s suppliers, who
currently pay an average of about $25,000 for the prime real estate. On top of that, Whole Foods is also
asking suppliers with goods in highly-trafficked areas of the stores to offer greater discounts on their
goods.

Most grocery stores, however, seem fairly unshaken by the news. Shares of Kroger (KR, +4.74%) dipped
the most, about 4% in trading Thursday. Walmart (WMT, +0.86%) and Sprouts Farmers Market (SFM,
+4.65%) each dipped roughly 2%, while Costco (COST, +1.57%) remained flat. In comparison, the S&P
500 dropped about 2%, with Amazon (AMZN, +1.69%) also sinking at roughly the same rate.

Supporting document 3.

Will the Amazon-Whole Foods Deal Affect Local Food Producers?

BEURTEAUX, D. (2017, 12 14). Will the Amazon-Whole Foods Deal Affect Local Food
Producers? From CIVIL EATS: https://civileats.com/2017/12/14/how-will-local-food-
producers-fare-under-amazon-whole-foods/
Small producers worry about losing market opportunity, as independent grocers see an opportunity to step
up their local efforts.
BY DANIELLE BEURTEAUX | Business, Local Eats
12.14.17

Six years ago, Jenna Huntsberger started selling handmade pies, quiches, and cookies, from a stall
at a farmers’ market in Washington, D.C. Now, her baked goods company, Whisked!, relies on
wholesale accounts for the bulk of her sales. In addition to selling at local markets and cafés,
Huntsberger’s products have also been available in Whole Foods’ D.C. stores since 2015.

For years, Whole Foods has heavily marketed itself as a place to buy local food, and many small
food businesses have landed their products on its shelves thanks to the retailer’s local buying policy.
The store allows small producers to approach local and regional buying managers to get their
products into stores; the buyers also recruit many indie food companies. Whole Foods also
maintains an online portal where companies can sign up and connect with a category buyer.

Despite being smaller than many other national supermarket chains—Whole Foods claims 473
stores in North America and the U.K. compared to Kroger’s more than 2,790—it is a powerful
force in the local food economy. Landing a Whole Foods account offer can offer exposure to an
educated, consumer who might be willing to spend money on a new item. For producers, the
relationship offers the Whole Foods stamp of approval—a sign that they comply with the
company’s stricter-than-average sourcing policies.

Most customers seem to like it, too. “Whole Foods understands local stuff is what keeps them really
interesting and fun and makes it more of an experience shopping there than going to Safeway or
another bigger retailer,” Huntsberger said.

Since Amazon acquired Whole Foods for $13.7 billion in August, however, Huntsberger and other
small, regional producers have been asking questions about how the online retail giant will
incorporate the supermarket chain into its business. Recent moves to centralize the decisions about
product assortment—as well as changes to producer participation in in-store promotions—have
raised concerns about how local businesses will fit into the next-generation Whole Foods.

Whole Foods has yet to make public any concrete changes to their local buying program, and
company representatives declined interview requests for this article. Instead it supplied this
statement: “All Whole Foods Market stores will continue to sell local products, and our buyers
remain committed to discovering and incubating local and innovative brands. Local suppliers and
products are crucial to the success of the company.”

[Update: On January 5, The Washington Post reported that Whole Foods has begun requiring food
producers to pay for in-store demo opportunities, and require some producers to discount their
products sold in Whole Foods stores.]

Though the grocer has not made any explicit announcements about its plans, learning about Whole
Foods’ work with local producers on its website has gotten increasingly difficult. As some sharp-
eyed observers have noticed, “local” is now hard to find on the site—but “savings” and “new lower
prices” are featured. And locating the retailer’s local program takes dedicated search or a visit to
the site map.

Changes like these have some small producers worried about the future. “We’re just hoping,
because we have strong sales, we will be fine,” said Huntsberger, who relies on the company for a
significant portion of her sales. “It’s very much up in the air right now.”
While some worry that the “Amazonification” of Whole Foods could require local producers to
compete against larger food companies with lower prices—potentially resulting in a dilution of
authentic local products—others see opportunity for independent grocers to step up their efforts.

Distribution, Prices, and the Trouble with Scaling Up

While Amazon’s e-commerce model revolutionized shopping and logistics, it also fostered an
expectation of low prices—and that doesn’t usually work well for small food producers. That’s
according to Daniel Max, of Asheville, North Carolina-based Lightswitch Foods, which owns
Kombucha Capital and Buchi Kombucha, and has products in 70 Whole Foods stores in the mid-
Atlantic and Southeast regions. Small producers often don’t have the resources to move products
around the country and can’t offer prices comparable to bigger brands.

Max and co-owner Zane Adams think that Whole Foods will likely move to a model that resembles
that of other large grocery retailers—meaning larger scale, better margins, and lower prices,
achieved by either choosing lesser-quality ingredients or centralizing operations. “It feels like that’s
where it’s going to go,” said Adams.

John Lee, a co-founder of Capital Kombucha. (Photo courtesy Capital Kombucha)

Both owners are wondering what this could mean for their company. “Will Whole Foods only want
to work with companies that are [selling] $50 million and up, to the exclusion of craft brewers?”
wondered Max.

Many small producers don’t have the capacity to expand outside their region, said Huntsberger,
whose products are now in 13 Whole Foods stores. “There’s no way we could have gone from being
in one store to 40-whatever stores in the mid-Atlantic region,” when hers was a new company, she
said. “We would be struggling with that now, and we have a lot more room and resources.”

Small producers often see getting a purchase order from a big retailer as the holy grail, said
Danielle Vogel, founder of Glen’s Garden Market, a grocer with two stores in D.C. that focuses on
local foods. But they often don’t anticipate the stress that will put on their business in terms of
production capabilities, delivery schedules, margins, and less-than-optimal plotting. They’ll also
likely be amongst the most expensive product in their category.

“It’s a really rude awakening because oftentimes they’ve gone from a really productive, excited
response at farmers’ markets to a very different scenario at a big grocery store that’s not a good
advocate for their craft,” she said.

Which is why starting small—at Whole Foods or elsewhere—with the ability to scale up slowly,
creates an on-ramp for local producers.

The Small Producer–Whole Foods Relationship

Yet even before the Amazon purchase, maintaining a product line at Whole Foods had its
challenges for startups.

John and Angela Fout started Sohha Savory Yogurt in 2013. They began selling at farmers’
markets, were later scouted by Whole Foods, and began with 20 Whole Foods stores in Boston in
2015, followed by five in New York City. While they were approved for a handful of additional
stores, they were still responsible for approaching individual buyers to get their product ordered.
The experience differed with each location, with some welcoming them with open arms and others
never ordering.

For a small company like theirs, said Angela, that process was difficult. “It’s all in the hands of the
people stocking shelves. As a small business, we do everything, and we can’t waste so much time
going begging [to] them,” she said.
 John Fout at the Park Slope farmers’ market in Brooklyn. (Photo courtesy Sohha.)

John Fout calls the Whole Foods system “a weird fiefdom,” wherein each store within a region
operates somewhat independently. Even before the Amazon deal, he thinks pricing pressure often
caused the company to hire less-experienced (i.e., less expensive) buyers who weren’t always
knowledgeable about products. “The local forager for the region knew her job, but the in-store
buyers were clueless,” he said. The Fouts are optimistic that the new ownership could present an
opportunity to smooth out some of those kinks.

The bigger looming disruption is Amazon’s delivery model. “That could potentially crush the local
model because fewer and fewer people [will] walk into a local store,” said John. That means fewer
opportunities for producers to interact with and educate shoppers, he said. The Fouts said offering
samples and talking with potential customers, in Whole Foods and elsewhere, has been a big factor
in their brand’s growth.
In areas like the Northeast, where there’s a growing market for online shopping, however, the
Amazon system could work in their favor—with caveats, John said. “If they can figure out a way to
properly integrate things so [customers] have a great in-store experience, it could be good,” he said.
“But that’s a hard to nut to crack.”

A recent poll by Reuters and Ipsos shows just how hard that nut is—as even the most dedicated
digital shoppers have been found not to like buying groceries online. (Amazon recently ended its
Amazon Fresh grocery delivery service in parts of nine states.)

Traditional Grocery Competition

As a public company, Amazon will be under some pressure to show that its acquisition was fiscally
sound. Its 2017 third-quarter net sales included $1.3 billion from Whole Foods, according to the
company’s recent sales report, but that didn’t stop its stock from taking a tumble. And its grocery
competition includes behemoths Costco and Wal-Mart, plus German chain Aldi, which plans to
open another 900 U.S. stores in the next five years, putting its total at 2,500 (assuming none close).

Additionally, Kroger announced an expansion of its local producer program in September. The
company has a blended centralized and decentralized buying and merchandizing system, said
company representative Kristal Howard. “Our customers love local,” she said.

Sarah Weiner, executive director of the Good Food Foundation, welcomes new outlets that help
local producers reach a wider audience; three years ago, she and her team created the Good Food
Merchants Collaborative. But she questions the ability of large retailers to operate outside the
confines of their systems, which usually mean strict delivery schedules, lack of flexibility, and
narrow margins.
“Even if Kroger makes shelf space for local, the really big structural changes would probably need
to evolve to truly get to that goal,” said Weiner.

Weiner said that she can see Whole Foods becoming more like a large Costco-style retailer, but
with some higher-end and local products. “I think that might be a hard transition for food crafters
who are at a small-medium scale,” she said. “On the other hand, it’s going to make it much more
clear to the public who’s really interested in quality food.”

More Space for Small, Independent Retailers?

With Amazon’s Whole Foods acquisition in the midst of a surge in interest in local foods, some
independent grocery retailers are seeing a chance to re-establish their local bonafides. “This creates
a real opportunity for small retailers to create and entrench a different product mix,” said Vogel of
Glen’s Garden Market in D.C.

Glen’s is one of 22 independent groceries in the Good Food Merchants Collaborative, which is
planning to launch a cooperative buying program to expand smaller retailers’ buying power and
hopes to offer more competitive prices for consumers.

“We would be essentially collectively displacing the buying power of a Whole Foods regional
account,” said Vogel. “We become the safe space and landing pad for [producers] who no longer
have that outlet, and simultaneously, we’re better for them and have better, stronger, more
authentic relationships anyway.”

Small grocers are looking to local food to strengthen ties with consumers, said Travis van Horn,
coordinator of communications and media relations at the National Grocers Association.
Meanwhile, the trade association’s research shows that consumers also look to independent grocers
for local food. “They generally have stronger ties to the communities they serve and a better finger
on the pulse on what consumers need and want,” said van Horn.

Any changes Whole Foods or other major food retailers make to their local buying efforts highlight
the need to have a larger conversation about values, said Lightswitch’s Adams. Small stores have
an important role to play, he added.

“Independent stores can elevate this point of uncertainty, by saying, ‘We think local is important,
and we think regional is really the future to how we secure our food system,’” said Adams.

Supporting document 4.
How a college dropout grew Whole Foods into the company Amazon is buying for $13.7 billion
Clifford, C. (2017, june 16). How a college dropout grew Whole Foods into the company
Amazon is buying for $13.7 billion. From CNBC MAKE IT:
https://www.cnbc.com/2017/06/16/how-john-mackey-grew-whole-foods-into-the-
company-amazon-is-buying-for-13-point-7-billion.html

Catherine Clifford
4:29 PM ET Fri, 16 June 2017
This college dropout grew Whole Foods into the company Amazon is buying for $13.7 billion

Amazon paying $13.7 billion for Whole Foods Market may be a savvy business decision for both parties
— Amazon has been dabbling in groceries and Whole Foods needs to better compete with the burgeoning
natural foods market it helped launch. But the founding ethos of the companies are as different as a
chocolate pop tart and organic oatmeal.

Amazon is the result of Jeff Bezos' obsession with the efficiency and scalability of the Internet.
The Seattle-based tech giant's vision is "to build a place where people can come to find and
discover anything they might want to buy online" according to its mission statement, and to get
it to you overnight. The company has grown to have a market capitalization of almost $475
billion because Americans will pay for convenience.
Richard Drew | AP

Whole Foods CEO John Mackey juggles apples as as he's photographed in one of his stores on
New York's Upper West Side.

Whole Foods, meanwhile, is the result of an idealistic attempt to change the way people eat,
making them healthier, while promoting sustainable, fairly harvested foods and ethically sourced
meats.

After hitting a peak stock price of over $60 in 2013, Whole Foods started to get beaten by the
very same competition that it inspired into existence. A leader in bringing natural foods into the
mainstream, soon food retail giants like Wal-Mart and Kroger started selling in the category,
Trader Joe's launched, meal-at-home kits like Blue Apron changed the way healthy eaters started
shopping. With all the competition, Whole Foods suffered.
Photo by Dustin Finkelstein

John Mackey, co-founder and co-CEO of Whole Foods Market

Its stock price fell by more than half and activist investors like Jana Partners began to assert
ownership rights, much to the dismay of co-founder and co-CEO John Mackey, the only original
founder still with the company. Though he admitted the company had changes to make, Mackey
was against selling Whole Foods.

Mackey, whose salary as CEO has only been $1 a year since 2006, will make $8 million from
the sale of Whole Foods to Amazon, surprisingly little for a company sale of this size. He owns
980,000 shares of Whole Foods stock and the sale is based on a share price of $42. Jana
Partners' profit will reportedly be $300 million.
Photo courtesy Whole Foods

The first Whole Foods Market store

It all started on a vegetarian co-op in Austin

Mackey, now 63, grew up eating cocoa puffs for breakfast, a hamburger for lunch and boxed
macaroni and cheese for dinner, he tells host Guy Raz on a recent episode of the NPR show,
"How I Built This." He didn't start to understand that there was a value in eating a vegetable-
based, healthy diet until he moved into a vegetarian co-op, when he was 23, which, at the time,
he thought of as an adventure.

At the vegetarian co-op, Mackey, who had dropped out of college because he found the required
classes boring, became the buyer for the group. He was fascinated with the potential of healthy
eating.

Without a diploma but newly inspired by the power of organic eating, Mackey and his then
girlfriend, Renee Lawson Hardy, decided to go out on their own and open a natural grocery
store. They set out to raise $50,000, but could only muster $45,000. In 1978, they opened shop
on the first floor of an old house in Austin with a cafe on the second floor. The couple lived on
the third floor. It was called SaferWay, it didn't sell meat or anything with sugar and it primarily
served Austin hippies.
Craig Weller, Renee Lawson Hardy, John Mackey (L to R).

Two years later, Mackey and Hardy approached another local natural grocery store, Clarksville
Natural Grocery, owned by Craig Weller and Mark Skiles, about joining forces. The four went
into business together to open the first Whole Foods Market in 1980. In an effort to expand the
clientele, the four started selling meat, beer and wine.

From the first day they opened, Whole Foods Market was a success. "People were so excited
about this first store. It was amazing, and we didn't do any advertising. We just opened the
doors," says Mackey on "How I Built This." "The word of mouth was incredible. The whole
Austin counter culture hippie community knew about it immediately."

Near-death experience

When Mackey looked to rent the space that would become the first Whole Foods Market, the
landlord mentioned it was in a 100-year-flood zone, meaning that once every hundred years the
area would flood. Mackey, enthusiastic, young and eager to grow, didn't flinch. He was willing
to take the risk. It turned out to be a losing bet.

In the Spring of 1981, that 100-year flood landed. The store was drowned, sewage forced out of
pipes, inventory ruined and looters came and trashed the store. Mackey remembers wading
through the dark waters to get whatever cash they had left in the store safe.
Photo courtesy Whole Foods Market

The Whole Foods flood of 1981

They didn't have flood insurance. "We thought we were pretty much out of business," says
Mackey. "By all rights, Whole Foods should have died through that flood. We had to rebuild the
store and it was going to cost a lot of money to do that and we just didn't have the money, so I
thought, we all thought, we were finished."

The Austin community stepped up to save the business. Customers pitched in to help with the
cleanup effort, investors put in more money, banks extended credit lines and team members
(employees) worked for free to get the store back open.

"We were really united around that near death experience," Mackey says. When they got the
store re-opened, Mackey was determined to expand. "I wanted to open a second store after the
flood. It was like, we can't put all of our eggs in a basket that might float down the river."
In 1988, when Mackey approached venture capitalists for the money to expand in a significant
way, he was repeatedly rejected. He remembers one VC telling him the market was too niche:
"You know, John, I see you have got a pretty good business her, but it looks to me — I looked at
all the stores — like you are a just a bunch of hippies and you are just selling food to other
hippies and I don't think that is a very big market," he told Mackey. A decade later, that same
venture capitalist told Mackey not investing in Whole Foods was the worst decision he'd ever
made.

Mackey did raise venture money though: Whole Foods sold 34 percent of the business for an
$8.5 million valuation, which at the time was about 15 to 20 percent of sales, says Mackey on
"How I Built This." Hungry for cash to grow further but uninterested in handing over more of
his company to venture capitalists, Mackey took Whole Foods public in 1992 and raised $28
million valuing the company at $100 million. With the cash, Whole Foods scooped up a slew of
other natural food markets around the country.

Whole Foods' growth continued as eating healthy became increasingly mainstream. In 2016,
there were more than 460 stores in the United States, the company did $16 billion in sales and
had 87,000 employees,according to a recent financial disclosure.

Of course, that growth didn't come without controversy. In 2015, the store was taken to task for
systematically over-weighing and overcharging certain food items. Whole Foods denied that
these errors were anything other than inadvertent.

"There will be no one that ever loves Whole Foods Market as much as I love it"

Unable to thwart the pressure from investors to sell the struggling chain, Mackey is caught
between his ideals and a need to keep afloat the business that he created.

"There is no point in business where you can say, 'At last, I have arrived.' What makes business
so amazing is, what makes capitalism so dynamic is that in fact, if you are successful, people
copy you. And that's what has happened with Whole Foods. A lot of people have copied us. That
helps keep your edge," says Mackey.

Today, Mackey still lives in Austin and purposefully drives by the location of the first store,
which is now a school. He thinks of the past, but he also understands that to stay in business
means evolution.
"There will be no one that ever loves Whole Foods Market as much as I love it," says Mackey.
"But building a business is a little bit like having children and watching the children grow up ...
you hope your child is healthy, you hope your child is happy and you hope your child has
integrity and does the right thing. And I think it is important to have a good founder and
entrepreneur but the great businesses continue to live on after the founder moves. I certainly
hope Whole Foods is in that space."