Amazon-Whole Foods Shakeup: Some Will Love It (Others, not so much.)

It’s safe to say that virtually everyone in our industry is on the edge of their seat, watching this spectacle unfold. The question is, what are we watching?

When I was a young lad, a mentor of mine said,

There are 3 kinds of people:
Those who make things happen,
those who watch things happen, and
those who wonder, “What happened?”

I would argue that today, it is more important than ever for us to strive to be the ones who make things happen – because in today’s hyper-competitive market the other 2 types of folks won’t be around next year.

Are you one of those currently watching this happen, and wondering what you can do to be proactive (as opposed to helpless) in the face of these seismic shifts? If yes, you're not alone. But we’ve got you covered.

In our first post on the Amazon Whole Foods merger, we outlined some of its major strategic implications, gave a few proactive steps that brands could take, and advised to take action or be left behind. If you haven’t read that post, we encourage you to now, as we are already seeing many of the predictions from that post coming into existence.

Today, we have a new observation and prediction to make.

Trampled Under Foot

We predict that Whole Foods’ same-store performance is going to disruptively, discontinuously shift upward, at a breakneck speed. Not spike, but shift.

Why?

Because, as we pointed out in our last post, virtually overnight over 400 locations of Whole Foods will become Amazon distribution centers. This has implications far beyond the cost savings that Amazon will experience from being able to distribute more conveniently to their Amazon Prime customers.

As quickly as the Amazon marketing juggernaut can arrange it, people will start flocking to their local WFM pickup locker… where they are likely to say, “What the heck, let’s take a walk through the store while we’re there.” This phenomenon will have 3 follow-on implications:

1. Amazon (Prime) will gain customers who might not have thought they could afford WFM products, while WFM will benefit even more from Amazon Prime’s massive and growing influence with mid-to-high income households and Millennials.
2. Brands who are doing great in-store marketing will have a chance to pick up mindshare and shopping cart from the increased foot traffic.
3. If Amazon can articulate and “own” a new grocery “buy-style” (perhaps, “Order your non-perishables online, and pick them up when you come to touch-shop for your fresh items!”), they will also probably be able to secure a larger market share longer term.

Notice that 2 of the 3 benefits above are controlled by Amazon/WFM. The only thing that brands will be able to affect in this equation is how well they are marketing 

Summary

We project that in addition to traditional Whole Foods shoppers, many new shoppers will be headed to Whole Foods for the convenience of an increasingly integrated 

online/in-store Amazon shopping experience – and while they are there, many will wander in and discover lower prices than they thought, and new products that they don’t know about. At the very least, this situation means that brands should take advantage of this combined traffic, get into the stores to demo and sample their products, and run a tight ship to ensure they’re getting the maximum bang for their marketing buck.

More likely, though, we can probably safely say that if a 

brand is not aggressively doing demos in store, they are going to lose distribution and market share to competitors who are.

Amazon’s moves in Whole Foods really are a big deal. Welcome to our future. What Amazon has articulated so far will shake up not only Whole Foods, but the entire industry, as we saw yesterday from the impact on the stock prices of retailers like Kroger (-8.1%), Wal-Mart (-2%), Target (-4%), and Costco (-5%). Other retailers feel compelled to follow Amazon's strategy; Wal-Mart and Google announced an e-commerce partnership this week in response to the Amazon announcement. (PS: It won’t work.)

And because of Amazon’s history of price cutting, brands too are rightly fearful of what is yet to come. But betting your brand’s survival on hoping Amazon won’t ask you for a price cut is not a good strategy. The best available option for brands today is to embrace the new reality, and figure out how to lower costs and increase marketing effectiveness as proactively as possible. If brands respond to these extremely dynamic changes lethargically, they may literally cease to exist in Whole Foods (and this would not be a good indicator of their competitiveness for the rest of the market long term, either). On the other hand, if a brand responds proactively, we believe the next year or two will present a rare opportunity to grab mindshare, market share, and longevity.