(2017-06-16) Amazon Buying Whole Foods

Amazon will buy Whole Foods for more than $13 billion, Bloomberg News and others reported Friday morning.

Amazon was already pushing into the $800 billion grocery business via its Amazon Fresh delivery business, which competes with the likes of InstaCart, FreshDirect, and Google Express.

Suddenly Amazon owns a nationwide network of already-popular grocery stores that have already solved the tricky logistical problems involved in sourcing and storing fresh food.

Adding groceries to its repertoire gets Amazon that much closer to being a one-stop destination for everything you buy.

It encourages people to use the Amazon Echo smart speaker for shopping lists and purchases, which makes far more sense when you’re ordering groceries than it does when you’re trying to buy, say, a new lamp or a pair of shoes. Same goes for Amazon Dash, whose Wand barcode scanner the company has just resurrected.

Their Patents Were a Leading Indicator of Increased Interest In Fulfillment & Logistics

They have considered various formats for expanded warehouse networks, including mobile truck-based mini warehouses, mobile airborne warehouses, and local re-stocking stations for drones.

As the chart below highlights, Amazon has been ramping up its patent applications in supply chain and logistics. Amazon filed at least 78 logistics patents applications in 2016, an all-time high, and that number will likely rise.

The Companies Most Likely To Be Hurt By The Whole Foods Acquisition

Whole Foods is by far Amazon’s largest M&A deal and more than 10 times the size of Amazon’s next largest buy (Zappos for $1.2B in 2009).

footprint in some of the most affluent urban areas and invigorate its tech-enabled efforts with Amazon Fresh (grocery pickup) and Amazon Go (cashier-less retail tech), along with Amazon Prime in general.

Here are the companies most likely to be affected...

The Shelf Life of John Mackey

Monday, April 10, was going to be a big day for John Mackey, but he had no idea how big it would turn out to be

A hedge fund in New York called Jana Partners had snatched up almost 9 percent of Whole Foods’ stock and announced that it would pressure the company to either overhaul its business or sell itself—perhaps to another grocery giant, such as Kroger, or to a less traditional player, such as Amazon

The company had surprised the business world last November when it announced that 25-year Whole Foods veteran Walter Robb—who had shared the CEO role with Mackey for six years—would be stepping aside, making Mackey the sole CEO.

Whole Foods’ stock price topped out at $65 per share in late 2013,

The company had doubled its revenue and tripled its profits in the seven years prior, the article touted

But by the time the company announced its leadership change, the mood around headquarters had sagged

After its high of $65, Whole Foods’ stock price had gradually lost more than half its value, and it has hovered around $30 for two years. The company had reported six successive quarters of declining same-store sales

He didn’t care a hoot for health food until after college, when he moved into a vegetarian commune in Austin called Prana and became the resident food buyer, then took a job with a local health-food store called the Good Food Company

Mackey’s studies and life in the commune had led him to a predictably progressive worldview. But as he worked to build his store, he developed a new, more business-friendly set of beliefs. He’d been reading a lot of Milton Friedman

The regular grocery, in time, became good enough on quality—and usually better on price.

the gap between Mackey’s personal mission and that of his company became more and more pronounced. Personally, he went through a series of diet awakenings, becoming ever more ascetic in his food choices, to the point that now he not only eats vegan but consumes no oils

boils down to Whole Foods becoming a gourmet specialty-foods store as much as a healthy one.

As that transformation happened, another one was happening throughout the rest of the supermarket business

Fair enough, but the problem with that strategy is that it’s probably not the kind of thing that’s going to satisfy Wall Street investors

The situation also provides an excellent window into the mind of Mackey. A conventional solution might be to double down on growing Whole Foods into a mega-grocer. To Mackey, though, it’s a callback to his roots. “We’re going back to being a little bit more niche than we were.

*I ask him if he ever thinks, “Well, we changed food culture. Our work is done—we can go home, let the big guys take it from here.”

“There’s part of me that thinks that,” he says. “But then I see that seventy-one percent of Americans are overweight and thirty-eight percent are obese, and we realize our work is not done.”*

he started a series of week-long Total Health Immersions, each run by a nutrition expert such as Esselstyn. At a cost of $4,000 per person (which the company pays), the attendees get “intensive education about healthy eating and lifestyle. We put them on a mild exercise program, we take all their biometrics, and we completely control their food for one week,” Mackey explains. “We feed them the Whole Foods Diet.

Whole Foods runs its own health-insurance program for employees, in addition to working with a large health-insurance provider.

Both programs might one day become available to the public, Mackey has mused—a goal that points to his view of Whole Foods as something more than just a grocery store. “We’re a mission-driven company,”

The way Mackey sees it, the story of Whole Foods’ current crisis is a “morality play between Conscious Capitalism and greedy, short-term financial capitalism.”

“Entrepreneurs are the true heroes in a free-enterprise economy

In 2013, Mackey co-wrote a book about conscious capitalism (and coined the term) with Raj Sisodia

On the other hand, he believes that many business leaders have become fundamentally greedy, and that because of their actions, the wider public has come to view business as exploitative and untrustworthy

Does he think about the possibility of taking the company private today? “I’m thinking about a lot,” he says.

And yet experts say such a transaction is highly unlikely in Whole Foods’ case, because the financials just don’t make sense

On the company’s second quarter earnings call, it announces an overhaul of its board of directors and details numerous cost-cutting measures, but Jana Partners declines to back off

Whereas the path for 365 stores veers in the direction of convenience, the flagship stores have increasingly turned into foodie theme parks as much as places to do weekly shopping. That means more in-house restaurants and brew pubs and wine bars, more outdoor public spaces for morning sober raves (this is a real thing—it’s called Daybreaker).

It’s anybody’s guess how much time Mackey actually bought, especially since Jana Partners rejected the company’s offer to appoint two board members the hedge fund suggested in exchange for an eighteen-month “standstill” agreement