The following article is a written adaptation of an episode of Thrilling Tales of Modern Capitalism, Slate’s podcast about companies in the news and how they got there. In 2017, Amazon entered the grocery business by tossing Whole Foods in its shopping cart. Amazon spent more than $13 billion to buy this 40-year-old supermarket chain known for its organic merchandise and, at times, its sky-high prices. In the grocery world, the purchase was a cataclysmic event. "The acquisition of Whole Foods was the alarm bell that started all these multibillion-dollar investments in digital grocery capabilities," says Jon Springer, executive editor of the trade publication Winsight Grocery Business. The COVID pandemic shifted the industry’s focus toward food delivery, which only played further into Amazon’s strengths. And now, people in the world of groceries, people on Wall Street, just people in general, are extremely curious about Amazon’s supermarket ambitions, given the company’s habit of taking a wrecking ball to any market it gets involved with.
"Everything is done differently today because of Amazon, and the grocery industry is one of the last industries to come under that influence," Springer says. Whole Foods itself revolutionized that industry. From one health food store in Austin, Texas, that opened in 1980, it became a household name and changed the entire conversation around groceries. Gary Fine, a former Whole Foods employee, says, "Whole Foods was a mission-driven company, and the mission was to change the world, have good stuff, and to change the way people eat. Well, you know what? They won. They won. But the demand for organic, natural food created a new problem for Whole Foods: Other supermarket chains were upping their game. And that competition could take advantage of the fact that Whole Foods-or, as people called it, Whole Paycheck-had gotten a reputation for high prices. Conventional grocery stores began to replicate Whole Foods’ organic offerings, but much cheaper. In 1997, Whole Foods started a private label line of products it called 365 Everyday Value.
The idea was to offer some more affordable items-but it wasn’t enough. By the mid-2000s, CEO and co-founder John Mackey realized that Whole Foods no longer stood out from the crowd. He said in a 2004 interview, "When we started out, our ideas were really on the fringe of the culture. And what’s happened over time is they’ve migrated from the fringe to sort of the cool and hip. Whole Foods had expanded rapidly, far and wide, on the basis that it brought something new to every neighborhood it opened a store in. But once the mainstream caught up to what Whole Foods was doing, and began to do it cheaper, the company’s luster started to fade. In 2006, Whole Foods stock dropped almost 40 percent as competition ate into its Sales (www.ozma.one). In 2008, in the midst of the financial crisis, Apply the stock went down 76 percent, and John Mackey sold a piece of the company to a private equity group.
This was created by GSA C on tent Generator DEMO.
Whole Foods bumped along for the next several years, but it faced increasing pressure from unhappy investors. And according to Jon Springer, the problem the company was up against was simple: The competition got stronger. Conventional grocery chains like Safeway and Kroger, with their bigger scale and often greater efficiency, were offering organic food at cheaper prices in stores that were right around the corner from consumers all over the country. Once upon a time, Whole Foods had been able to defeat competitors by buying them up. But these rivals weren’t like those independent health food chains. They were bigger and well resourced, and they knew how to compete. Whole Foods was struggling. "They were pretty much up against the wall here," Springer says, "and Amazon kind of came out of the blue and said, ‘Here’s what we’re going to pay for you. According to Springer, the sale "was received as a monumental blow" in the grocery industry.
"Stock of all the conventional supermarkets and the Walmarts of the world just got devastated by this one announcement." The fear wasn’t so much about what Amazon would do with Whole Foods specifically; it was just the fact that big, bad Amazon was finally entering the grocery business in a major way. For Amazon, acquiring Whole Foods was in part just a way to encourage people to sign up for Amazon Prime memberships, joining Amazon’s powerful loyalty program in exchange for discounts on their groceries. But there’s more than that. A lot of people think Amazon saw buying and operating Whole Foods as a way to learn about the world of groceries and then to use that knowledge to launch a larger, more mainstream grocery chain. Now the company may be taking its first steps toward doing just that: New stores are popping up around the country under the Amazon Fresh banner. "People anticipate that Amazon will roll out hundreds of these Fresh stores, not just dozens but hundreds, Sales in the years to come," Springer says.