How Amazon Can Help Whole Foods Fix Itself

By
Image
An employee at 365, Whole Foods’ more affordable spinoff. Photo: Patrick T. Fallon/Bloomberg via Getty Images

It’s impossible to predict what the proposed purchase of Whole Foods by Amazon might mean for the grocery chain, for the future of food and retailing in general, for the nascent meal-kit industry, for employment in the retail space, and so on. It’s equally impossible not to speculate a bit, since this is probably the biggest happening in food retail since Walmart became America’s biggest “grocery store.”

I should start by saying that I’m writing as an individual and not as any kind of representative of Jana Partners, the activist investors who bought some of my time and advice while in the process of also buying a chunk of Whole Foods shares, then agitated for changes in the company, which, in part at least, precipitated this sale. They wanted my views on Whole Foods and where it’s gone.

Though on much of this I’m a novice, my observations were probably not useless: I’ve been a reserved Whole Foods booster for many years, and have looked closely enough at many of the company’s policies to take its side against my normal allies in some situations (and, of course, to take my normal allies’ side against Whole Foods in others). Thanks to my travel schedule and eating preferences, I have also shopped in probably as many Whole Foods stores as anyone who doesn’t work for the company. I know something about food and food policy, a little about business — especially the supermarket business — and a lot about meal kits. And, thanks to being interviewed frequently about this situation for the past two months, I’ve gotten to pick the brains of many people who know a great deal about all of these topics.

So, for what it’s worth, I think Amazon now has the chance to correct many of the problems that have recently been plaguing Whole Foods. That’s not a guarantee; it’s a wish. Things are going to get better or worse, and that’s the only given. I’m going to try to see how they might get better, and support those efforts.

Whole Foods began as a mission-based company: Put simply, the mission was to improve the quality of the food people eat. And to some extent, that mission was accomplished. But I believe that the chain lost its way (compare the mission statement with reality), and has simply become an upscale conventional supermarket with some products that align with its mission and some that do not, sold with little distinction.

Take, for example, this photo:

Image
Photo: Mark Bittman

I shot this at the entrance to a Whole Foods in Southern California. It’s the first thing customers saw that day when they walked in the door. The second thing was a display of grapes from Chile. The only distinguishing characteristics of these products compared to those sold elsewhere was that they were more expensive. The cookies were especially egregious: Not only do they belie the notion that you go to Whole Foods to buy “healthy” food, they are not even high-quality cookies. I’ve seen this kind of thing in every Whole Foods store I’ve visited in the last couple of months.

The stock market in general and many shareholders measure success only by profits and stock price, though Whole Foods’ impact has been incalculable regardless of where its stock stands. Recently, that impact has lessened, because in an attempt to please investors and analysts, the chain’s executives have prioritized mainstream appeal over the original mission. Meanwhile, its competition, which includes everything from Walmart to Kroger to Trader Joe’s to the third-rate supermarket near my house — which also sells terrible cookies and organic grapes from Chile, but cheaper — is nibbling at the edges, robbing Whole Foods of what’s sometimes called USP: the unique selling point.

I want to go to Whole Foods and trust that the fish is sustainable. Period. I hope to see meat that is pasture-raised without cruelty, and with respect to labor and the land (or at least moving in that direction). I want to know that the vegetables are mostly local, from real farms, in the true spirit of “organic.” I’m willing to pay a premium for that. I don’t need protein powder, or water, or cookies in a Whole Foods; those products are just in my way, as are shitty prepared-food bars and mediocre food kiosks. Maybe all of that makes me old-fashioned, but the “sell me great ingredients” approach could, and once did, make me loyal to the store.

I’m not naïve, at least when it comes to food. Others, however, are. We all know people who believe in Whole Foods. They believe that if they shop there, they’re guaranteed of buying something that’s healthy or sustainable or somehow “good.” That kind of blind faith is, well, blind faith, but it’s evidence that Whole Foods has built a level of trust and that, for Whole Foods, has been a good thing.

That trust — along with 450-plus large, attractive, and potentially much better run stores — makes Whole Foods a very valuable company. Amazon has bid $13.7 billion, a 27 percent premium over what share prices were when Jana became involved. It’s not impossible that Walmart, Costco, Albertsons, Kroger (one of the big losers here, as Kroger’s stock price, down 17 percent, showcases), or some other player may bid more, but at the moment that seems unlikely. So let’s say this Amazon deal gets done. No one knows what happens next, Jeff Bezos hasn’t revealed what’s in his mind, John Mackey’s musings may or may not matter, and you can read two dozen articles about what is “likely” to happen that are all pure speculation. (As is this, admittedly.)

But there is some evidence: Bezos, not long ago, bought another valuable brand, the Washington Post. That brand was also struggling and believed to be doomed by many people. At the time of the purchase, for what seemed an outrageous amount of money (but, at $250 million, a pittance to Bezos), the fear that Bezos would turn the paper into a cheering squad was rampant. But with an injection of money and energy not seen elsewhere in the daily-newspaper business — the Times is offering buyouts while the Post has been hiring — the Post is again at least the third most important daily in the country, and arguably first or second when it comes to domestic news. Bezos is an enigma, but although he has bought properties to remove them as competitors, he doesn’t buy them to sell off their assets, or to ignore the value brought by their legacies, and he’s certainly not doing that here.

There are many things Bezos and Amazon’s team can do with Whole Foods, and no one knows what they will do. So let me say what I’d like to see happen, and a thing or two that I think are likely to happen.

One is that it’s likely that Blue Apron’s celebrated IPO will be less celebrated and perhaps even withdrawn. If Whole Foods was in a position to be a strong presence in the meal-kit world before this transaction — and it was — Amazon will make it a monster. Imagine this: You find a recipe you like, and you have some or half or none of the ingredients. You go online, and the recipe is there. You check the ingredients you want in the quantities you want, you check whether you want them prepped or not, you choose the quality level you want (more on that in a sec), and an hour later, the stuff is sitting at your door, along with the half-and-half and the dishwashing detergent you forgot to order last time. This won’t happen next year, but it won’t take long if Amazon chooses that route. How will other meal-kit-delivery services weather that storm?

Now, about quality. Not everyone can afford to shop at Whole Foods. But remember that, in general, Amazon makes little money and distributes no dividends to shareholders: The company’s No. 1 goal is and always has been to grow. So lowering the cost of good food, for them, is an option that wasn’t open to Whole Foods. As such, among the first things Amazon is likely to do — says everyone, and this I believe — is to make Whole Foods’ actual food less expensive.

But as I and many others have said forever, good food — food that is fair, affordable, nutritious, and green — should probably be more expensive, not less. As it happens, we live in a stratified society; I don’t like that, and I’ve spent a good part of my life working against it, but I acknowledge it. If you can afford pastured meat or day-boat fish, you can specify that in your order; if you can’t, you pick the level you can afford. At least no one is choosing for you: That is, not all the food is priced beyond your reach, and if your reach is long, you can buy the best stuff. Yes, Whole Foods has done some of this already, but Whole Foods has never been a place where “everyone” can shop; my bet is that Amazon will try to correct that, making the impact of this deal greater (and way better) than even Walmart’s move to organics.

Amazon will sell you anything, from Pepsi to a $30 chicken to a screwdriver. But suppose within Amazon there’s a WF brand or a 365 brand, or an Alexa brand (who cares what you call it?) in which everything really is guaranteed to be exactly what it says it is: local, organic, AWA-certified, truly sustainable, whatever. It’s verified by independent parties. It’s priced accordingly. There are foragers, some looking for the best stuff they can find, and others finding buys in food that is raised, perhaps not perfectly, but with principles. (FreshDirect, probably also sweating bullets, already does a good job of this.) These are things that Whole Foods execs will insist are already true; if so, great. That’s a foundation and a good starting place.

And suppose that food is within the reach of just about everyone in the country. I’d forgotten (until this piece in Civil Eats reminded me), that the USDA is doing a pilot program to allow the use of food stamps online; Amazon (of course) is a part of that program. Lower prices for good food, delivered anywhere — maybe free for people who can’t afford to pay shipping or join Amazon Prime? — sounds like a winning formula. As Matthew Yglesias puts it at Vox, “Amazon [may] crack the grocery home-delivery game in a way that leads Kroger to go the way of Borders.” And that result is only beneficial to the rest of us if Amazon sells better food than Kroger.

In many ways, the primary enemy of the sustainable-food movement is monoculture, the fact that some of the best, most extensive, best-watered land in the world — we call it “Iowa” for short — is used for little more than corn and soybeans, most of which are in turn used to produce ethanol (a joke), junk food, and feed for industrially raised animals. If you make corn and soybeans less profitable, you do the same for junk food and for cheap, prison-raised, crappy meat. If demand rises for real food, you make growing that food more appealing to farmers who simply respond to the call of profits. Now, it’s clear that both Amazon and Whole Foods sell plenty of junk: It’s going to take a cultural shift for that to change. But this could be the stimulus needed for that shift.

There’s also plenty to worry about, including the survival of neighborhood supermarkets and other stores, and the inevitable job loss as those stores begin to disappear. But the revolution in retailing has already forced a reconfiguring of Main Street and even of so-called superstores. Amazon is hardly what you’d call “labor-friendly,” nor can we celebrate its environmental standards. The most praiseworthy things about the company are its ruthless efficiency — I still marvel at its ability to get me the stuff I need or want with so little effort on my part — its creativity, and its potential.

No one, probably including Bezos and his most thoughtful people, can foresee exactly what’s going to happen here. I’m happy that Whole Foods isn’t going to be turned into a more pleasant version of Kroger, which would be useless at best. Instead, I’d like to see a reinvigoration of the brand by putting the original mission first, and using Amazon’s retail wizardry to make that brand a selling point that would stimulate the purchase, sale, and growth of good food. At this point, with everyone still speculating, one can only hope for the best.

This isn’t a done deal, but insiders have told me they’re “99 percent certain” that no one will outbid Amazon. In theory, there’s nothing stopping Amazon from selling televisions or beds or screwdrivers or Kindles in the Whole Foods stores. I had to have explained to me some of the basic principles of mergers and acquisitions just the other day. When I say “quality” I don’t just mean it should be certified organic. I mean it should be good; see my column from last week for a discussion of what “good” means. The first ingredient on the package I saw was white flour, and the second was sugar; the rest of the ingredient list read like Chips Ahoy. The company will say it was encouraging providers of all its meat to move in that direction. The evidence says otherwise. It’s like, “Everything I buy is organic.” Right. But in the famous words of Marion Nestle, organic junk food is still junk food. Which I would say has been betrayed, and others might say was delusional to begin with. Full disclosure: I have a little equity in Purple Carrot, of which I was part for about six months. As will become clear, that won’t affect what I’m about to say. Duh. The 365 launch was the chain’s belated attempt to deal with that. Which doesn’t necessarily mean that Whole Foods needed to price everything high, as it did for years, when its reputation gave it a kind of mini-monopoly. I rarely go to Home Depot for something I can buy on Amazon, although I sometimes patronize the local mom-and-pop hardware store in a probably useless show of community spirit. Whether that package is ultimately “good” or “bad” is not yet knowable.
How Amazon Can Help Whole Foods Fix Itself