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Sep
2017
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Formula to success for Whole Foods and Amazon

What Will It Take for Amazon to Succeed with Whole Foods? The Rest of the Formula

Amazon made some quick and dramatic changes to Whole Foods as soon as they became the shop owners last week, namely to bring the retail pricing on several key items in line with customers’ expectations. (Whole Foods has long been perceived as being overpriced; the company’s nickname is “Whole Paycheck” for good reason.

Through the Lens of The Five Laws of Retail

Getting the pricing right is very important (the Fourth Law of Retail), and Whole Foods will undoubtedly see a significant sales increase over the short term now that pricing is being addressed. But doing that right is only about one-fifth of getting a total retail strategy right. And in some ways, it’s the easiest part.

I recently visited a Whole Foods (right after the changes) and talked with some of the people working there—a kind of an informal “walk-through.” They were only vaguely aware of the changes, and pretty much had no opinions, good or bad, about the new management.

Uh oh. That’s a missed opportunity. Both Whole Foods and their new overseers (Amazon) have very strong corporate cultures, and they couldn’t be more different. Successfully blending them to create a new corporate culture will be the key to Whole Foods’ future success.

Let’s look at the players

Amazon is by all accounts a punishing culture. Very high pressure, and very high turnover. Employees are encouraged to compete against each other. There’s even a mechanism to give confidential negative feedback against your co-workers in order to further your own objectives. “If you’re not working sixty hours a week, you’re not working” is a common refrain. There is no consideration or time off for life’s events, like the birth or death of a family member or having a serious illness. They don’t care. Only productivity matters. This is the culture that has worked for Amazon so far and has propelled them to $100 billion in sales. (It should be noted, however that profits over the last twenty-three years are negligible).

Whole Foods, on the other hand, values “democratic capitalism” and all that it includes: empowerment, teamwork, and diversity. They have a formal stated “Declaration of Interdependence.” Community is recognized and is actively and consciously reinforced. They have built a company culture that is focused on saving the planet through working together and through shared values. The company has enjoyed growth in both revenue and profit throughout most of its history.

So let’s review how Amazon appears to be doing with respect to the Five Laws of Retail.

The Second Law: Turn is Magic.

Amazon has a reputation for driving turn. This is critical for success in the grocery business: bananas turn quickly, as does all fresh foods.

The Third Law: It’s Always the Product.

Whole Foods built its business on presenting absolutely mouth-watering food choices. Amazon hasn’t made changes to that, so we’re good there so far.

The Fourth Law” It’s the Retail Price.

Amazon seems to understand and is addressing the need to re-educate the public to think about Whole Foods as a site for value by focusing on retail pricing that is more in line with their competitors.

The Fifth Law: Protect Your Downside.

Who knows? My guess is that Amazon is not prepared for or even knows how to prepare for failure since overall they have never experienced it. So it’s probably unimaginable that they should have a plan in place to prepare for a possible failure.

This gets us back to The First Law of Retail: People First. Putting people first will be the key to Amazon’s success or failure in grocery industry. Imposing one company’s culture and values onto another almost never works, and I predict this will be especially difficult in the case of such diametrically opposed cultures and values. One important aspect of any corporate culture is internal communication. Whatever the message, leadership must be sure everyone understands it, and that everyone is headed in the same direction with a shared understanding of values.

From what I saw in Whole Foods last week, that is not happening.

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