Thoughts on Amazon and Whole Foods

I had occasion to engage in what could charitably be called a discussion of the Amazon/Whole Foods situation on Twitter recently, Predictably, for such a limited forum and a complicated topic, it turned acrimonious and ended in blocks. Given that, I figured it was worth a longer examination.

Personally, I wasn’t a Whole Foods shopper before the buyout, and no matter how much Amazon cuts prices, I won’t become one. Their stores are inconvenient to me, I don’t like the guy who ran the joint before Bezos, and honestly I’m more of a Publix guy (shout out to Fred at the deli counter, who is ridiculously enthusiastic and always makes me feel great about stopping by).

am an Amazon customer. Have been for years. I was an early adopter of Prime, and I’m part of the bracket that is closest to market saturation for the service (82% of my bracket has Prime). I have friends who work/worked for Amazon. There’s a distribution warehouse right across town from me. I use it at home and at work, and honestly, I couldn’t be more pleased.

So there are my biases. And I’m not an economist or a business expert. I admit those gaps in my knowledge, and acknowledge that they might trip me up on specific point. Constructive feedback welcome.

The arguments around Amazon and Amazon/Whole Foods sort of overlap and spin around each other, so I’m just going to take them one by one as I think of them.

Amazon is killing brick-and-mortar retail, and by shopping there, you’re helping them.

Not so much. Amazon is putting a squeeze on big-box sellers. Which is to say its doing to them what they did to local retail, and what malls did to downtown. I’m not saying it’s good or bad, just that Amazon isn’t new or unique in this. It’s also building bookstores, and now owns >400 grocery stores so is it killing brick and mortar, or joining the game?

As for helping them, what can I tell you? Most local retail for things I need on a semi-regular basis (other than food and gas) is long gone. So I can choose between Wal-Mart, Target, Kohl’s, Home Depot, Lowe’s, Best Buy, Hobby Lobby, Michael’s, A.C. Moore, etc., none nearer than a half-hour across town. Plus I have to put up with sensory overload, crowds, awful traffic, difficulty finding the right items, and the invariable understaffing of the checkout line.

Stack that up against picking up my phone and having what I need arrive at my doorstep in two days, and you’ve a tough row to hoe to convince me that it’s a bad deal. It’s more like picking the lesser of two evils.

Finally, a bit of advice: Alternatives to Amazon aren’t going anywhere, so if you dislike the ongoing dissolution of terrestrial retail, shop elsewhere.

Amazon is going to charge me more to eat better.

This was the tweet that sparked that recent conversation, and it may well be the most sublime misread of a news item that I’ve seen recently (the news item being, to wit, “Amazon to discount Whole Foods prices for Prime members). I mean, really…first, grocery stores have been discounting items for free club card members forever, which means that they were effectively upcharging everyone who didn’t want to sell their data. This isn’t new.

Second, look at the demographics: WF’s average shopper is, according to one site, “very high income” and “lower middle age”. The majority of their market has a household income of >$100k/yr. That rough bracket has about an 82% adoption of Amazon Prime. So the Venn diagram of “shops Whole Foods” and “has a Prime account” looks less like a MasterCard logo and more like a circle. It’s not like Amazon is going to be pressuring legions of Whole Foods customers to get Prime accounts…they won’t have to.

Finally, a bit of advice: If you dislike Amazon’s pricing model at Whole Foods, shop elsewhere.

Amazon is going to destroy/monopolize the grocery market.

Amazon, for all their size and power, has about 1.5% of the grocery market, a sector notable for its continue reliance on small neighborhood stores. On my way to work, I pass within no more than a mile of two Food Lions, three Harris-Teeters, a Publix, a small independent grocery, and a Super Target with a grocery section. That’s eight grocers, all thriving. The small town where I grew up has a Food Lion, a Lowe’s, two Harris Teeters, and will soon add a Publix.

Amazon owns one very high-end grocery chain, and they’re going to have to walk a fine line between discounting and destroying that high-end cachet. Discounting them enough to compete with Wal-Mart seems unlikely, though if they move into delivery that might tilt the playing field (even there, mid- to upper-tier stores here already offer delivery, even in my little town). I’m not saying it’s not a concern…it is. Any time a big player moves into a new market, it’s cause for concern. But predicting a meteoric rise from 1.5% to monopoly in a notoriously competitive market seems…premature.

Finally, a bit of advice: If you want to minimize Amazon’s impact in the grocery market, shop elsewhere.

Amazon is a data hoover, and shopping there feeds the beast.

Online, yes. Amazon doubtless has an obscene amount of data about my shopping habits. And I do find that disconcerting, while at the same time recognizing that I’m privileged enough to have the luxury to not really worry about it. But that’s online, and when I do anything online, I start from the presumption that it’s not private.

Walking into the grocery is different. Decline to give them your personal data. Shop with prepaid cards. Commit the ultimate consumer sin and pay cash. The difference between shopping online and in person is that in person I have much more control…should I choose to exercise it.

Finally, a bit of advice: If Amazon’s data collection policies bother you, shop elsewhere.

There’s a lot that’s weird about Amazon, like they way they have yet to turn a profit, and I wonder if investors aren’t going to catch on one day. I suspect it’ll happen about the time Amazon runs up against a market they can’t own. That $950B value is market cap, and that money can go elsewhere at speed. Standard Oil, General Motors, IBM, and Microsoft were all seen as unstoppable once, too. A market where customers have substantial alternatives, and are able to substantially impede data tracking at will, may prove to be Amazon’s undoing.

But again, if Amazon bothers you, shop elsewhere. If you’re a WF customer, statistics strongly suggest you have the means to do so.

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