There are some weird and very intriguing aspects to Amazon’s (NASDAQ: AMZN) acquisition of Whole Foods (NASDAQ: WFM) that the stock blogosphere is ignoring. Strangely enough, the weirdness tells us more about today’s retail environment than most of the self-proclaimed experts online.
The strangest and most telling takeaway from the Whole Foods deal is that Amazon is scared to death of Walmart (NYSE: WMT). Even though the media is full of noise about Amazon’s threat to Walmart, recent actions show that Jeff Bezos and his team are frightened by Walmart.
Amazon’s plans for Whole Foods include lockers where customers can pick up merchandise ordered through its website, a press release indicates. That sounds exactly like the pickup option available at many Walmarts. Walmart is also experimenting with computerized lockers of its own.
Another big initiative is to lower Whole Foods prices to counter Walmart’s recent push into the organic and natural products sector. Finally, Amazon wants to add Whole Foods’ private label products to its website, probably to counter all the Great Value products available at Walmart.com.
Amazon wants to Make Whole Foods More like Kroger
The other odd aspect of Amazon’s strategy is that it wants to make Whole Foods more like traditional supermarkets such as Kroger (NYSE: KR) and Safeway.
One of Amazon’s main initiatives will be to offer discounts and special deals to Prime customers through Whole Foods’ cash registers. That sounds as if Amazon wants to set up a loyalty card program at Whole Foods just like the ones at Kroger and Safeway.
“In the future, after certain technical integration work is complete, Amazon Prime will become Whole Foods Market’s customer rewards program, providing Prime members with special savings and other in-store benefits,” the press release states.
Interestingly enough Whole Foods has been examining the possibility of setting up a loyalty program for some time but has not, probably because it lacks the resources. Now it has the resources thanks to Amazon.
Another key effort the lower prices is also designed to make Whole Foods more like Kroger. Part of the reason for that is, Kroger has been winning the grocery wars by offering low prices and loyalty cards. Kroger is now the nation’s largest organic grocer; selling around $16 billion worth of natural and organic products, or more than Whole Foods’ total revenue in 2016.
An intriguing possibility is that Amazon will take even more steps to make Whole Foods even more like Kroger; by adding pharmacies, financial services, banks and possibly gas stations to stores. That might be risky because it may drive away some of Whole Foods’ customers by killing its’ uniqueness.
Is Amazon Planning a Prime Rewards Program?
Another fascinating probability is that Amazon is planning a Prime Rewards program that can be rolled out to other stores. Perhaps a Prime Rewards app or card that customers can use at other retailers; such as Kroger, Safeway, 7-Eleven, gas stations or Walgreen (NASDAQ: WBA), as well as Whole Foods.
Members would get a discount on gas or groceries for every dollar that they spent on Amazon. One big problem Amazon will face is that both Safeway and Kroger can offer customers a discount on fuel. Kroger even owns several convenience store chains, including Loaf N Jug and Turkey Hill that are integrated with its vast loyalty card ecosystem.
Therefore Amazon is not just imitating Walmart, it is imitating Kroger. An interesting possibility is that Amazon plans to use Whole Foods as a retail laboratory to test brick and mortar concepts. The concepts will then be rolled out to new stores or made available to other retailers.
This makes me wonder if Amazon is planning a partnership with big retailers such as Kroger, or considering an acquisition of a supermarket brand such as Safeway or Winn Dixie. Whole Foods’ 400 store footprint simply does not seem vast enough for Bezos’ ambitions.
There are other notable questions here including what is Amazon planning for Whole Foods’ Aldi clone discount grocer 360? Also, what will become of the Whole Foods locations in the United Kingdom and Canada? Will Amazon keep them or sell them.
It looks as if the Amazon-owned Whole Foods is going to become more like a traditional supermarket. The big question we have to ask is will that be winning strategy for either brand?