The Drum

There was a seismic shift in the business landscape on Friday, June 16, 2017. Amazon purchased Whole Foods, the organic food purveyor. The headlines and grocery stock prices reflected the surprise. There are discussions about the future of the grocery store. Just recently, in The New York Times, there was an article about what the challenges are with grocery stores, not the least of which is the array of products that do not match the way people actually want to eat today.

The US grocery business is under pressure. Mainstream, Main Street supermarkets, like Safeway, Stop & Shop, Kroger’s, Piggly Wiggly, are being stressed from the low price end by brands such as Aldi and Lidl. Purveyors of high margin foods such as Seattle’s PCC, Trader Joe’s, Sprouts, Big Bear, for example, put pressure on these brands by selling organic, fresh, chemical-free items. Walmart is committed to grocery and to online with the purchase of Target has cut back on grocery. The industry is undergoing massive changes.

Amazon and Whole Foods is a brilliant combination. Both Jeff Bezos and John Mackey are passionate about their brands. Jeff Bezos’ driving passion is an unrelenting focus on very basic customer retail needs: selection, convenience (speed and delivery) and low price. John Mackey is passionate about organic, sustainably sourced foods with the mission under the heading Values Matter that says, “At Whole Foods Market®, “healthy” means a whole lot more. It goes beyond good for you, to also encompass the greater good. Whether you’re hungry for better, or simply food-curious, we offer a place for you to shop where value is inseparable from values.”

Both brands will learn and gain from each other. Amazon will learn about traditional retail and the customer behavior in traditional retail. Amazon will probably seize the chance to disrupt traditional with non-traditional approaches. By applying its superior technology and information management systems to traditional retail, Amazon will be able to provide superior, personalized service with better selection, convenience and lower prices. This will threaten the “traditional” retailer who does not have access to Amazon’s systems, power and scale. Whole Foods has the opportunity to expand outside of the physical store. In 2015, it created a new store concept in order to attract Millennials. It is hipper, cooler, a smaller format with less expensive prices. The jury is out on its performance. Now, rather than create a new physical store concept, Whole Foods can learn how to win online. One should not be surprised. In an interview with Annie Gasparo of The Wall Street Journal in 2015, John Mackey spoke of the new concept, saying, “ You have to be willing to evolve with the marketplace, You can’t not do that because it might possibly take sales from your existing flagship brand.” He also said that Whole Foods is compelled to “keep up with times.” Well, today’s announcement is just that.

The match-up of these two powerful brands and their respective passionate and powerful owners is a merger that has everyone buzzing about the possibilities and future of grocery. But, there is one other seismic change that happened with this merger. On Thursday, June 15, 2017, John Mackey publically condemned the behavior of Jana Capital the activist hedge fund that was hounding him to implement their type of financial engineering, and destroy his brand. According to John Mackey’s quote in Financial Times, “They’re greedy bastards, and they’re putting a bunch of propaganda out there trying to destroy my reputation and the reputation of Whole Foods, as its in their self-interest to do so. They just want to sell Whole Foods Market and make hundreds of millions of dollars, and they have to know that I’m going to resist it. That’s my baby. I’m going to protect my kid, and they’ve got to knock Daddy out if the want to take it over.” John Mackey lived up to expectations on Friday. And, he has accomplished what no other company has when faced with the activist invasion: he told Jana where to go, he told Jana that they would have to fight him, and then he pulled off one of the greatest anti-activist, anti-financial engineering coup of all times. He not only snatched his brand from the hands of financial engineers: he sees the future, and is on the pathway to future success.