Jerri-Lynn here: I’ll admit up front that I’m not a huge fan of Whole Foods– although occasionally, I’ll brave the crowds to pick up items after a shopping foray to the Union Square Greenmarket. I’m posting this for its discussion of the inevitable crapification of the Whole Foods product if the proposed Amazon acquisition indeed successfully closes.
Also, I’ll mention that the suggestion at the end regarding a possible Wal-Mart response to the pending deal is perhaps made tongue-in-cheek– as I think it leans toward the fanciful.
By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street
Here’s something Wal-Mart could do to Amazon, just to be nasty.
Amazon expects to slash jobs and other costs at Whole Foods, “a person with knowledge of the company’s grocery plans” told Bloomberg. The ink isn’t even dry on the proposed deal, but synergies and efficiencies are already being trotted out.
Amazon agreed to acquire Whole Foods for $13.7 billion, a 27% premium over the stock price on Thursday at close, and now intends to push down prices to slough off Whole Food’s nickname “Whole Paycheck,” and go after Wal-Mart Stores, Target, the German discounters Aldi and Lidl that are expanding in the US, Costco, and grocery store chains, such as Kroger and the private-equity owned chains Safeway and Albertson’s.
The jobs to be cut include cashiers, who’d be replaced by Amazon’s own “Just Walk Out Technology,” now being tested at its Amazon Go convenience store in Seattle. When customers with the Amazon Go app on their smartphones walk into the store, the system logs them into the store’s network and establishes the connection to their Amazon account.
The system uses “computer vision, sensor fusion, and deep learning,” Amazon says, to track everything customers pull off the shelf. If customers put an item back, the system removes it from the virtual cart in their app. When done, customers can just walk out without having to go through a check-out line. The system will automatically charge the customer’s account and send out a receipt.
This system would replace the cashiers at Whole Foods, “according to the person familiar with the matter, who asked not to be named because the plans are private,” Bloomberg reported.
So not the cumbersome self-check-out machines we’ve been grappling with for years, but something that would allow Amazon to differentiate itself. However, the main advantage would be a radical reduction in labor costs at Whole Foods stores. The “employees remaining would help improve the shopping experience, the person said,” according to Bloomberg.
Amazon also expects to make a number of other changes, including to the merchandise the store carries, all in order to push down prices. Amazon would introduce private-label products – in addition to Whole Foods’ existing private-label products – to replace products that it considers too expensive. So get ready for Amazon’s food brands.
These changes won’t take place until after the transaction has closed, which is expected to be later this year.
The grocery price war is already red-hot. So the high prices that have hobbled Whole Foods over the past two years will likely be gone.
After Whole Foods becomes part of the Amazon empire later this year, it no longer needs to make significant and growing profits. That quaint concept is out the window. Amazon is like so beyond that. It can lose money, no problem. On its own, Whole Foods could have never done that.
An Amazon spokesperson denied everything. Amazon has “no plans to use no-checkout technology to automate the jobs of cashiers at Whole Foods and no job reductions are planned,” he told Bloomberg in a statement.
Alas, almost all acquisitions of this type entail efforts to find synergies and efficiencies, as they’re called, to bring costs down to make the transaction work, which translates into hefty job cuts. And since the deal is far from closing, there need not be official “plans” at this point.
Amazon has made an art out of pricing, with prices jumping up and down dramatically, depending on who is looking at it, what kinds of cookies and browsing history they have on their devices, and what is known about them, for example when they’re checking a price while logged into Amazon.
This “variable pricing” model – which has spawned an entire sub-industry to defeat it – has spread to other retailers and can drive astute shoppers nuts. Of course, airlines and other industries also have used it for years. It would be interesting to see if Amazon can figure out how to move it to its brick-and-mortar stores – say, with prices only being posted on smartphones with the Amazon Go app when you get to the product.
Amazon is also going after low- and middle-income shoppers. For a mass-market retailer, it needs all customers. It already has cheaper Amazon Prime memberships for customers who are on government assistance, according to Bloomberg. And it’s testing a program to deliver groceries to recipients of food stamps.
Now if Wal-Mart Stores wanted to put a little squeeze on Amazon, just to be nasty, it could offer something like $4 billion more for Whole Foods so that Amazon would outbid Wal-Mart by offering another $2 billion or $3 billion, at which point Wal-Mart would walk away, celebrating, and Amazon would have to come up with $20 billion to buy Whole Foods, not $13.6 billion, which could dent its credit rating and make things just a little harder for Amazon in the future. Just thinking out loud here.
When Amazon announced the deal, shares of Wal-Mart, Kroger, Costco, and Target get crushed. Read… Amazon, the Death of Brick & Mortar, Buys into Brick & Mortar