As the grocery segment heats up against the backdrop of a price war competition, online behemoth Amazon dropped a bomb on the industry just four days ago: It acquired Whole Foods in an all-cash transaction valued at approximately $13.7 billion, including Whole Foods Market’s net debt.
This not only could shake up the grocery industry but the customer loyalty industry itself.
“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthier,” said Jeff Bezos, Amazon founder and CEO. “Whole Foods Market has been satisfying, delighting, and nourishing customers for nearly four decades–they’re doing an amazing job and we want that to continue.”
Whole Foods Market co-founder and CEO John Mackey said: “This partnership presents an opportunity to maximize value for Whole Foods Market’s shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience, and innovation to our customers.”
Whole Foods Market will continue to operate stores under the Whole Foods Market brand and source from trusted vendors and partners around the world. John Mackey will remain as CEO of Whole Foods Market and Whole Foods Market’s headquarters will stay in Austin, Texas.
Completion of the transaction is expected to during the second half of 2017.
What ramifications will this massive acquisition have on the rest of the industry?
Tom Caporaso, CEO of Clarus Commerce, weighed in on the issue, stressing the massive loyalty opportunity.
“The needs of the customer are at the center of every move that Amazon makes, which is why this acquisition is a crucial moment for the grocery and loyalty industries as a whole,” Caporaso explained to Loyalty360. “It’s especially critical since loyalty is fleeting in grocery, as around one in six shoppers has switched their primary choice of supermarket over the past 12 months. If Amazon can leverage this acquisition toward nationalizing its lofty Prime-only AmazonFresh delivery ambitions, and lower prices by integrating technology in-store, Amazon could create a shopping experience which lies squarely at the winning intersection of fresh, convenient, and well-priced.”
Amazon Prime has proven to be, arguably, the most popular loyalty program in the U.S.
“Amazon already has a tight lock on 50 percent of all U.S. households, with its army of 80 million Prime subscribers,” Caporaso added. “Through that premium loyalty program, which encompasses a myriad of benefits, Amazon has been able to get Prime members to spend 5x more than non-Prime members. If Amazon can figure out a way to integrate crucial Prime-only shopping benefits into Whole Foods, then competitive grocery chains might start to feel the pressure that traditional retail has felt from Amazon over the past decade.”
Stellar Loyalty CEO Kevin Nix told Loyalty360 that Amazon’s move to buy Whole Foods signals the clear convergence of digital with physical commerce.
“Most brands are struggling to make the transformation from physical to digital,” Nix explained. “Amazon recognizes that consumers live in both realms, so they must have a physical strategy to match their market-leading digital presence. They understand that customer loyalty depends on striking the right balance.”
Evan Magliocca, brand marketing manager for Baesman Insights & Marketing, told Loyalty360 that Amazon’s acquisition of Whole Foods is a massive undertaking with just as much risk as reward for Amazon, “but that’s never stopped them in the past. Innovation isn’t easy, and I think this one will be messy considering the size of the acquisition and the size of the grocery industry. We can all speculate that it’s a fulfillment and distribution play, but I think it’s much more than that. Bezos thinks bigger. I think he aims to tear down the outdated, old-school grocery store model. And while it’s hard to predict how that will come to fruition—we know Kroger, Giant Eagle, and every other major grocery chain will suffer as countless other industries have suffered when Amazon rips apart the old way of doing things.”