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Will drones be delivering boxes of La Croix?

June 16, 2017

Amazon announced this morning that it will buy Whole Foods for a reported $13.7 billion. The acquisition, which values Whole Foods at $42 per share, is Amazon's largest move to date towards brick-and-mortar retailing. While both companies are staying quiet for the moment in terms of how this will affect Whole Foods as whole, there are a few questions in particular that we’d like to address.

How will this deal affect prices and quality at Whole Foods?

The question at the top of everyone’s list is, of course, about prices.  Earlier this year, it was reported that Whole Foods was being pressured to lower its prices by one of its primary investors, Jana Partners. As part of the effort, Whole Foods was directed to operate more as a big-box grocer by cutting down on the number of items available in-store and moving toward a national distribution model, rather than focusing on regional and local products. Warehousing and regional distribution centers have always been a part of the Amazon model, so the jury is still out on just how this would affect the availability of local products.

Amazon also realizes customers want a certain authenticity in their purchases (hence the creation of its Etsy-like store), so it's not unreasonable to assume they'll want to maintain the brand quality associated with Whole Foods. But they've also certainly got the undercutting-brick-and-mortar-retailer-prices game down, so with Amazon now at the helm it would make sense that Whole Foods will certainly start looking for ways to reduce prices as Amazon strives to keep prices extremely low for its customers.

Will Amazon's Whole Foods deliver?

Amazon's own grocery delivery service is limited to certain cities because of the warehousing and refrigeration needs of grocery items. If anything, this acquisition could be the first step in a major expansion of the Amazon Fresh service's footprint, as the company has just purchased a whole bunch of new warehouses and stores in new territories to use as hubs.

Will Whole Foods open any more full-service restaurants?

Whole Foods opened its first stand-alone restaurant, a Brazilian-style churrascaria, in its flagship Atlanta store earlier this spring. Based on investors’ hopes of operating more like a big box store, all evidence points to this restaurant being a one-off rather than the beginning of a nationwide expansion. As Whole Foods looks to reduce prices, it would make sense that they will cut down on new projects like these in order to focus on the company's core business. As such, the people of Atlanta may be the only ones who ever get enjoy Whole Foods’ take on Brazilian-style steak.

What happens to John Mackey?

Earlier this week, Whole Foods CEO John Mackey, who has been with the company since the beginning, was quoted as referring to some of Whole Foods' investors as “greedy bastards.” While such a claim was considered a bit uncouth by business standards, Mackey’s comments were pretty spot on based on today’s news.

Mackey is certainly aware of his company’s need to evolve, but he’s been vocally against selling the company, which has been the main directive of the company's investors for some time. As Mackey recently told Texas Monthly, “That’s my baby,” he said of Whole Foods. “I’m going to protect my kid, and they’ve got to knock Daddy out if they want to take it over.” That said, while the figures have yet to be revealed, Mackey is likely to benefit significantly from the sale and Amazon has stated that he will remain as CEO for the foreseeable future.

Will this propel Whole Foods past Kroger in terms of favorability?

In a recent study of American grocery store chains, Whole Foods received 48% favorability, which placed it second to Kroger, which received 53%. While perception isn’t everything, Amazon’s core values all rotate around customer obsession and satisfaction. It’s safe to say that in the near future, Amazon will work hard to evolve the relationship between Whole Foods and its customers. This could be through lower prices, an enhanced in-store experience or upgrading Whole Foods’ delivery service. Regardless, one could expect this to be a major focus for Jeff Bezos and his team.

Stay tuned for more news as more details from the sale are released