Amazon to Buy Whole Foods for $13.7 Billion

Submitted by Mary Meade on June 27, 2017

On June 16, Inc. announced it would pay a little under $14 billion to purchase Whole Foods Market Inc. The move is sure to re-invent the grocery store business model while also ramping up Amazon's brick and mortar retail presence.Whole Foods, known for its organic products, has seen a drop in sales ever since competing grocers started offering organic foods. In 2016, Kroger's share of the organic market surpassed Whole Foods for the first time.

With new conveniences such as grocery delivery and a burgeoning local food movement, the multinational grocery chain has lost an estimated 14 million customers in the past six quarters. Still, Amazon has been eager to enter the grocery market—experimenting with delivery offerings like Amazon Fresh—but has so far been unable to disrupt the market like it has with other products like electronics and toys.

It is notable that Whole Foods' 450 storefronts are in predominately middle and upper-class, urban locations. Amazon may use these locations to solve the "last mile" delivery dilemma and utilize Whole Foods brick and mortar locations as distribution centers closer to its consumers. Delivering one package, one at a time, directly to consumers' homes is highly inefficient and costly, but Amazon could potentially incentivize consumers to pick up their Amazon orders in Whole Foods stores while they do their grocery shopping. Other scenarios could include grocery delivery or cashier-less grocery shopping (see Amazon Go), but no plans have been officially announced.

Whole Foods' quality-food reputation provides Amazon with the necessary credibility to jump into the fresh food market. Perhaps Amazon's partnership with a grocery store built off the organic food movement will foster environmental ethics in its business model.

However, there is still plenty of cause for concern about this merger. When many greener companies are purchased by larger corporations, they make clear that they are going to preserve the practices that make them a leader in social and/or environmental practices. This has been true of Ben & Jerry’s and Seventh Generation (both purchased by Unilever) and Honest Tea (purchased by Coca Cola). There are signs that social standards at Whole Foods are in jeopardy. In a recent employee town hall, Whole Foods CEO John Mackey expressed hope that the grocery chain could emulate Amazon's "customer-centric" focus. Mackey added, "I think, sometimes, our company's gone a bit too much team member focus at the expense of our customers. And that's one definite evolution that's gonna happen." Unfortunately, Mackey fails to account for the well-documented labor issues surrounding Amazon.

It remains unclear whether or not company culture at Whole Foods will change under Amazon. Currently, Whole Foods employees have access to a low-cost health care plan, generous discount on store items, and ability to vote on benefits. While Whole Foods is infamously opposed to unions, its employees are paid competitively. This is in sharp contrast to, where fulfillment center employees are paid low wages, and work under highly stressful conditions, and even corporate executives report excessive hours and unrelenting pressure.

"They are more customer-centric than we are," Mackey said. "They really are. And one of my takeaways is that, by God, we’re gonna become as customer-centric as Amazon."

In addition to potential labor concerns, Amazon uses a "dirty cloud," meaning that all the computer servers behind Amazon Web Services (AWS)data cloud are housed in warehouses largely powered by fossil fuels. AWS is a leading provider of web hosting, including major clients like Netflix. Amazon has released limited information regarding their energy use or their impact on climate, putting them behind competitors like Facebook, Apple, and Google, who have committed to or already reached 100% renewable energy sources, and full environmental impact reports. Although Amazon has pledged to eventually use100% renewable energy for their massive data servers, they have no plan or deadline to achieve this goal.

Whole Foods, meanwhile, has substantial renewable energy goals and has purchased renewable energy credits from wind farms to offset 100% of their energy use in stores and other facilities since 2006. Although Amazon has not stated if they will institute Whole Foods' business practices, you can raise your voice and tell Amazon to make the right choices for the environment.

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