Amazon's Takeover Triggers Downmarket Angst for Some Whole Foods Shoppers

  • Concerns surround retail giant’s takeover of organic grocer
  • Fans fret that upscale earthiness can’t survive Wal-Mart war

Why the Amazon Deal Is a Seismic Shift in the Industry

Say “Whole Foods” and some envision a gastronomic nirvana, overflowing with a healthy bounty worth a premium price. Others shun the store as an overpriced monument to yuppie indulgence.

For those in the love-it camp, like Shea Stevens, these are anxious times. A $13.7 billion proposed takeover by Inc. has Stevens, a 25-year-old Irving, Texas, resident, wondering how the chain’s foodie credentials will survive. After beginning as a small specialty store in Austin, Texas, Whole Foods is now poised to play a central role in Amazon’s head-to-head competition with discount giant Wal-Mart Stores Inc.

“I just don’t want Whole Foods to change how it is fundamentally,” Stevens said.

Stevens shared a sentiment expressed by other aficionados: excitement about the convenience of getting groceries from the store delivered to her mixed with concern about changes to a company that helped pioneer the organic-food market in the U.S.

Nan Griffith, a retired teacher, shops at a Whole Foods outside Detroit because of its selection of vegan products, including niche brands that aren’t widely available elsewhere. Incubating smaller, local brands has been part of the Whole Foods cachet for years, and she wonders if that culture can survive inside the embrace of a retail powerhouse.

“It’s like Amazon is taking over the world,” she said.

Asparagus Online

Amazon, like Wal-Mart, is known for using massive scale to offer low prices on everything from shoes and shirts to electronics and books. American shoppers have been slow to embrace online grocery shopping: Only about 1 percent are purchased online. Amazon, which has tried for roughly a decade to crack the code on delivering fresh food, wants to change that. And buying Whole Foods would give Chief Executive Officer Jeff Bezos a ready-made cadre of customers.

Amazon expects to reduce headcount and change inventory to lower prices and make Whole Foods competitive with Wal-Mart and other big-box retailers, according to a person with knowledge of the company’s grocery plans. The goal is to shed the upscale grocer’s reputation for being too expensive. At the same time, premium products are a big part of what draws shoppers to Whole Foods.

At a store in Brooklyn, New York, on Saturday, shoppers perused the massive craft beer selection and grabbed fresh bell peppers, locally aged cheese and wild-caught Alaskan salmon. John Hildreth, a 38-year-old restaurant manager, visits the store about once a week, mostly for its produce. He expressed some unease about the deal.

Changes Feared

“It’s the best store around here,” he said. “I don’t want that to change.”

Whole Foods, battered in recent years as conventional retailers muscled into its turf with lower-priced organic products, has actually already begun to change. Facing its worst crisis since going public in 1992, CEO John Mackey has been trying to reduce expenses and lower prices while preserving the chain’s high-end reputation. Mackey, who co-founded the company in 1980 in an unassuming Austin neighborhood down the street from an exterminator renowned for a bug sculpture that rotated atop its roof, has faced mounting pressure from shareholders. The Amazon deal was announced last week amid the potential for a proxy fight for board control.

Buying a Feeling

The transaction isn’t expected to close until the second half of the year, and Whole Foods shares soared 29 percent to $42.68 Friday -- more than the $42 deal price, indicating investors anticipate another bidder could emerge. Even still, analysts were skeptical of the idea that Bezos plans sweeping changes that would damage the Whole Foods ambiance.

“He’s buying it for all the intangibles that go with the brand; it has high emotional appeal,” said Thomas Ordahl, chief strategy officer at the branding firm Landor Associates. “He’ll be very careful tinkering with anything that could hurt the value of the brand.”

There’s significant overlap between consumers who shop on Amazon and at Whole Foods. More than 60 percent of Whole Foods shoppers are subscribers to Amazon Prime, and more than a quarter of Whole Foods customers already buy groceries on Amazon, according to the consumer research firm Magid.

Elise Bauer, a food blogger in Sacramento, California, lives about five minutes from a Whole Foods store and shops there several times a week. The chain’s high standards for how animals are treated make the higher prices worth it, she said.

For more on Amazon, check out the Decrypted podcast:

Bauer also is an Amazon shopper who occasionally buys food on the website. She likes the idea of getting Whole Foods groceries delivered and is optimistic about the deal.

“If anything,” she said, “the acquisition will make shopping at Whole Foods more convenient.”

— With assistance by Spencer Soper

    Before it's here, it's on the Bloomberg Terminal.