Why Amazon Bought Whole Foods

By Derek Thompson

Amazon announced on Friday morning that it’s buying Whole Foods for just under $14 billion, the retailer’s largest acquisition ever. The purchase holds implications for the future of groceries, the entire food industry, and—as hyperbolic as this might sound—the future of shopping for just about anything.

But let’s not get ahead of ourselves. At the simplest level, the deal represents a straightforward confluence of interests. Amazon needs food and urban real estate, and Whole Foods needs help.

The e-commerce giant has been expanding into groceries and physical locations, including bookstores, ironically working itself back into the brick-and-mortar business that it’s also disrupting. Whole Foods, meanwhile, offers the biggest name in yuppie groceries and a fleet of urban locations, which can double as Amazon warehouses. Meanwhile, the grocer is in a tailspin, its stock price cascading as revenue growth has fallen every year since 2012. Investors had for weeks been pushing the company to sell itself to a larger grocer, like Kroger. That Whole Foods ended up with Amazon is poetic justice, considering that, in 2015, CEO John Mackey said Amazon’s move into grocery delivery would be “Amazon’s Waterloo.” Doubters of Amazon’s strategy can point to the fact that groceries are a terrible, low-margin business. That’s true—almost as terrible and low-margin as e-commerce, where Amazon has already demonstrated that it can hypnotize Wall Street’s myopic financiers, while it spends tens of billions of dollars building a global warehousing and delivery infrastructure for a shopping future that is moving online. In short, Whole Foods was in a free fall, and Amazon is the perfect net to catch it.

That’s the most straightforward analysis. But then again, Amazon always seems to be not just several moves ahead of its competitors, but playing another game entirely—chess versus checkers, as they say—so it’s worth thinking through some of the more long-term, hypothetical implications of this deal.

First, this about food as a delivery service. Amazon understands that the most important value in American retail today is sloth. E-commerce is soaring and food-delivery businesses are taking off because human beings are fundamentally lazy and they don’t want to leave the couch to buy stuff. That’s why grocery stores and restaurants are seeing fewer shoppers and diners passing through their shops, as Americans are ordering more of their produce and meals online. A study commissioned by the market-research firm Euromonitor for Blue Apron’s public filing projects that the online market is projected to grow 15 times faster than the the rest of the restaurant business through the end of the decade.

In the last few years, Amazon has expanded its online grocery business, AmazonFresh, but it hasn’t quite mastered online groceries the same way it’s mastered books and media. With Whole Foods, which will continue to operate under its own name, an Amazon Prime subscription might operate just like Costco membership. Maybe Prime members would get deals on Whole Foods produce, and they could elect to have the fresh veggies …read more

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