Outside of Whole Foods Market

Amazon Discovers Groceries Are Harder Than Books

Denis Storey
April 12, 2018

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While few people expected Amazon’s historic leap into the crowded grocery business last summer with its $13.4 billion purchase of Whole Foods, nearly everyone has had an opinion. Despite the prognostications, though, most would be hard-pressed to admit they could have expected the accelerated pace of change Jeff Bezos would bring to such a stoic industry. 

Immediate Changes

The day the sale closed, Whole Foods rolled out a host of price changes. While the discounts made the headlines, especially the 40% cuts to produce, such as avocados and bananas, Amazon slipped in a few price increases. Researchers reported higher prices on snacks, dry groceries, and frozen foods. Analysts at Gordon Haskett found that, three months after the sale closed, average prices at the grocery chain long referred to as “Whole Paycheck” only fell 1.1%. 

Consumers noticed several other changes soon after the acquisition, such as: 

  • Amazon Prime members feel the love: In addition to the online perks tied to the $99 annual subscription, Whole Foods now offers exclusive perks and pricing for Prime members.

  • You can ship to the store: Amazon began installing lockers in select Whole Foods locations, where online shoppers can pick up their deliveries. Customers also can use the lockers for returns.

Growing Pains

But not all changes have been met with fanfare. Others have resulted in disgruntled local vendors, angry suppliers, and empty store shelves – a startling development for a company whose entire foundation is logistics. 

The first shoe to drop was the company’s retirement of its local sourcing program, which transferred more control over inventory to the executives who run Whole Foods in Austin, Texas. Additionally, local vendors had to pay if they wanted to offer samples to customers on-site. Successful local producers also would have to surrender a percentage of their sales to the company after hitting a certain sales threshold.

While these changes alienated customers and smaller producers, its growing pains in managing its inventory have translated into frequent food shortages and indignant suppliers. That’s exacerbated by the fact that Whole Foods wants suppliers to foot the bill for its new centralized purchasing system. In an email Whole Foods sent to suppliers, as initially reported by the Washington Post (another Bezos property), the company explained its new policy. In short, suppliers with annual sales of more than $300,000 must discount their groceries by 3% and their health and beauty products 5% to help pay for the system.

The changes outraged some suppliers so much that Whole Foods had to schedule a vendor’s summit in March when executives sorted through the complaints.

As Amazon’s takeover, and transition, with Whole Foods has painfully revealed, the grocery business is much harder than it looks.

A combination of consumer trends is driving unprecedented disruption in the retail space. One thing remains clear: consumers are now more powerful, and their expectations are higher. Companies trying to deliver the products consumers want – when they want them – face tightening margins while working to make the supply chain faster, more predictable, and cheaper. Learn how TraceGains solutions for retail can help solve supply chain challenges.