Why You Should Be Skeptical of the Hyping of Whole Foods Under Amazon

Whole Foods under Amazon seems to be doing as well in the free PR category as Trump did in his 2016 campaign. And at this juncture, I see no reason for eventual buyer satisfaction to be any higher.

The press was agog over Amazon cutting prices on a grand total of 100 items. Read that again. 100 items of how many SKUs? And it wasn’t as if many seemed to be the sort of loss leaders you see in conventional grocery stores, like putting a prime cut of meat or very popular dessert line on sale.

Moreover, comments at the Wall Street Journal story on the Whole Foods price reductions were surprisingly hostile. Recall that Wall Street Journal readers are high income and are therefore in Whole Foods’ target market. One had asked store staff how long the price cuts in the meat department would be in effect and was told a week. Another pointed out that the supposedly great new price on organic Fuji apples were still well above those of Sam’s Club, although you admittedly have to buy 6 lbs at Sam’s Club to get them at 75% of the Whole Foods price. Other readers complained of poor quality of berries, avocados, and chicken.

Now there may be sample bias at work, but the antipathy by people who have shopped Whole Foods and not found it lives up to its promise of high quality suggests that even getting its prices down may not be that much of a draw, even if Amazon decides to do more than just a first day price cut gimmick.

And let’s consider a few other factors:

Whole Foods has very few stores compared to big grocers. WalMart has over 4000 grocery stores with extremely large footprints. Unless Amazon buys several Whole Foods sized chains, it’s not remotely in WalMart’s league and does not pose much of a threat. Even the Southeast chain Publix has over 1100 stores. Having said that, the store chain that might be most vulnerable is Sprouts, which operates in 15 states, mainly in the southern part of the US, and has 240 stores. Given all of the noise about the Whole Foods acquisition, it’s a bit surprising that there hasn’t yet been a more granular analysis of exactly where Whole Foods stores are and which major grocery chains are exposed.

At least some, perhaps many, stores are relatively modest in size. That means Whole Foods is even smaller relative its major competitors than the raw number of outlets suggests. Whole Foods stores vary considerably in size. The smaller ones in urban areas (most of the ones I’ve visited in NYC and SF) have confusing layouts and scrimp on things I consider important, like the salad bar. And the lines are bad even at off hours.

Another set of arguments made by the “new Whole Foods” enthusiasts is that Amazon has trotted out all sorts of ideas for getting more people into the stores, like price breaks for Amazon Prime customers, having an Amazon locker service for pickups and returns, and having local deliveries.

Perhaps there is a market niche for the locker service, but for a lot of people, if you are going to bother to go to a store, you might as well go in and have a look. You might decide the asparagus looks punky and you’d rather have broccoli, or that the avocados aren’t ripe enough and so you don’t want them, or the cuts of lamb you wanted look too fatty and you’ll get some nice upscale sausages instead. And who returns anything to a grocery store?

And as for home deliveries, that market is generally limited to higher income, dense neighborhoods. I can’t see anything beyond a trivial interest from the customers of the stores I visited in Plano, Birmingham, and Portland, Maine. So this may be germane some places but can’t be assumed to be a meaningful sales booster across the chain.

Moreover, if these new services are structured like the existing Amazon Fresh food service in Seattle, I’m even more skeptical. Confusingly, as we will unpack. Amazon sems to have been running two different models under its “Amazon Fresh” label.

The original Amazon Fresh dates from 2007. It was and apparently still is a home delivery service. The latest information I could find on our modern crapified search engines is that Amazon now charges $299 per year. That does not sound much if you get deliveries regularly. The flip side is a lot of grocers in NYC, and I would assume in other urban areas, give you free delivery for a big enough order. And that $299 fee locks you into Amazon, which of course is the point.

And that isn’t the whole story. Notice that despite Amazon being a a behemoth by design, that this type of Amazon Fresh service has supposedly expanded from some parts of Seattle into “major cities” in California, and “many parts” of New York and Philadelphia. Clearly I know the wrong people. I’ve never heard a single person mention it, much the less use it.

However, in response to the news, a reader said today he’s heard reports from Seattle where the service was launched first that people steal out of the Amazon food drop boxes and actually scout out the trucks to find the best times to make the raids.

In addition, a different version of Amazon Fresh has serious quality problems, which raises red flags that that may also have been true of version 1.0.

Bethany Jean Clement of the Seattle Times gave a scathing review of the Amazon Fresh service this June. Let us not forget that is presumably the model for the hyped Whole Foods in-store pickup service. Not only is this doubtful in concept, it appears to be even worse in execution.

One reason many people are leery of online ordering for anything other that items like diapers, beer, and “you can’t screw it up much” fresh food like milk is that if you order produce, veggies, fresh bakery goods, meats or fish, you are at risk of winding up with something you never never would have bought in store for quality reasons. Put it more simply, you are subject to adverse selection. And that’s the case with the seriously misnamed Amazon Fresh.

The headline was bad enough: Test-driving Amazon’s brand-new, very weird grocery pickup service.

First, Clement wasn’t keen about the concept and gave it one star for mystery.

She ordered six items. Two were pretty good. The parsley, got four stars, and the asparagus, five. But the four were not good to awful, and the worst items were the most expensive.

A lousy lemon. How can you stick someone with a two star lemon? That verges on being a cosmic bad joke.

The baguette choices were frozen (ugh!) or from a local baker. But get this: there was no fresh bread option! You have to buy a shrink wrapped baguette thingie and cook it yourself, for the premium price of $5.69.

This was never going to come out well. My father made a huge retirement hobby of baking all sorts of breads. You cannot make a proper baguette at home. Period. It takes a special oven as well as special flour. Even if you get the flour, you still won’t be able to produce a proper baguette. Moreover, you can get decent baguettes fresh and cheaper too from bakers who are set up to make them. Panera in higher cost Manhattan charges $3.09 for a baguette. Super fancy Elis also has great baguettes made daily at a lower price.

So how did this fake baguette measure up? Rating: two stars, “Very very weird!”

Went with the local option, and it was WEIRD: a slightly deflated-looking, bâtard-shaped, already browned loaf encased in vacuum-packed plastic (with a little packet of “OXYGEN ABSORBER/DO NOT EAT”) that “stays fresh in your pantry for months!” Who knew that bread — made with totally normal ingredients, by the way: organic unbleached wheat flour, water, sea salt, organic barley malt and yeast — could perform such an unnatural feat? Baked as directed, it got nice and crusty outside, and was chewy almost to the point of gumminess, rather than airy, inside, with a slight sourdough flavor — kind of reminiscent of the bread you’d be served at an old-school seafood restaurant,

The reviewer’s second most expensive item was an $11.77 rose, for which she gave 2 1/2 stars and the summary: “ Out of a dismal selection, maybe the best choice?” Further comments:

I get that your users aren’t into spending a bunch, but great values abound in cheap wine! You can do so much better. But I suppose your algorithms tell you this is what the world wants. For your selection/algorithms/the world: one star. This wine, at this price, on its own merits: four stars. Average: two-and-a-half stars.

Here is the piece de resistance. This is supposed to be halibut:

If you don’t buy or cook fish, the significance of this picture will be lost on you.

This is an abomination. It should have been thrown as unfit to sell at least two days prior. Fish with visible small cracks is old. This piece has a monster cracks and is dry. I’ve said before that Whole Foods has terrible “fresh” fish, so it looks as if Amazon is already down with that.

This was 1 lb for $22.12. Remember, if you had gotten this as your pickup, you would have been stuck with trying to find some way to make it edible or pitching it and rummaging in your freezer for a backup or ordering in.

From the author:

Raw halibut should be a thing of beauty: firm, fresh, glossy. This fillet was mushy to the touch and even distressing to the eye: matte and sunken, the middle of it a squishy mess with indentations that looked like an angry face. It smelled, unmistakably, fishy, which it never, ever should. According to the label, it had been packed three days before; frighteningly, the use/freeze by date was still four more days away. Oven-roasted for the sake of the experiment, it tasted like it looked: mushy, sad, wrong. A big, majestic fish died for this. This is, apparently, everything that’s wrong with letting the world’s largest e-commerce player — the giant darling of Wall Street — pick out your groceries instead of doing it yourself. I’m really happy I’m not vomiting right now. If I could give this fish zero stars, I would.

And Amazon’s response to a highly critical review…in the top paper in Amazon’s home town is telling. No one from the PR department called her to make excuses or try to make up for the lousy order. This is what Clement got in response to tweeting her story:

The next round:

Followed by:

And then as Clement put it, “24 hours later, the poor @AmazonFresh help-bot persists!”

Clement confirmed my big doubt with her remark about lousy algo-driven wine choices. Everything else Amazon sells is fungible. A copy of Moby Dick is a copy of Moby Dick. You can buy hardback, paperback, used, new, Kindle and you’ll be happy with what you got unless it gets to you late, and Amazon focuses on getting delivery times right. A download of Avatar is even less prone to problems. And if you order headphones that don’t work? That’s not Amazon’s fault but it will arrange for a replacement.

But the food at Whole Foods will be Amazon’s responsibility and key to what happens going forward. Despite earning some antipathy for its high prices (and at least as some stores, not so hot performance on some other elements of the shopping experience), consumers perceive (whether always deserved or not) that Whole Foods has generally high quality merchandise. Unbeknown to many, Whole Foods would put new vendors through a very stringent qualification process.

If by contrast, Amazon can’t figure out not to sell bad lemons and rotten fish and not to engage in the “burn your customers” strategy of giving them crappy merchandise in their pickup and delivery orders, and adding insult to injury by dealing with bots when customers complain, Amazon is not going to merely achieve less that sparking results with Whole Foods. It will destroy value.

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