Amazon's purchase of Whole Foods is just the latest step on the company's steady rise to power, says the author of The Everything Store: Jeff Bezos and the Age of Amazon.
The online retail giant announced on Friday it would buy the high-end grocery chain for $13.7 billion, in a move that gives the online retailer a physical network of stores to distribute fresh food and other goods.
The deal sent shockwaves across the food distribution market and beyond. Shares of grocer Kroger swooned 11 per cent Friday afternoon, while Wal-Mart Stores fell five per cent, signaling fears that Amazon could cut prices and broaden Whole Foods' product mix, turning it into a much bigger retailer.
San Francisco author and journalist Brad Stone has been documenting Amazon's growth in the retail market for years. He spoke with As It Happens host Carol Off about what the Whole Foods purchase means for Amazon, consumers and the economy as a whole.
CO: How will Amazon run Whole Foods? Will they turn it into an online operation? Will it still be a bricks and mortar kind of store?
I don't think anything changes with the 400-plus Whole Foods stores for now. John Mackey, the founder of Whole Foods, is staying on as the head of that division.
But, you know, Amazon has been experimenting with different kinds of technologies to bring to physical retail for the past few years. One of their experiments in Seattle is this Amazon Go store, where there are censors that can see if you're picking something off a shelf and then just charge your account when you leave.
You can see technologies like that being brought to Whole Foods' locations, and then lowering its operating costs.
Amazon will pay $42 US a share or $13.7 billion in cash for Whole Foods' shares, a 27 per cent premium to what Whole Foods was worth on Thursday. (Carlo Allegri/Reuters)
CO: What do you think the end game is, then, for Jeff Bezos and Amazon?
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BS: I mean, the end game is to get into this massive food market and to have the kind of success there that they've had in areas like books and electronics. If they want to get to the scale, the size of a Walmart, which is still a much larger company by revenue, they've got to succeed in food. They've got to succeed in apparel.
CO: But they've already somewhat revolutionized the business of buying food, haven't they? I mean, you can go to stores where there's no checkout clerk.
BS: But these are experiments. That Amazon Go stores are not available to the public yet. It's been a prototype.
To the extent that they've figured some of these things out they haven't really had a lab to go and implement them on a big scale. With Whole Foods, now they do.
They've got 400 outlets where they could try some of these new payment techniques, where they can put in perks and benefits for Amazon Prime members, and where they can use their strength in last-mile delivery to go and take those pre-packaged meals on Whole Foods shelves — the sushi, the sandwiches, the burritos. It's 20 per cent of Whole Foods' business, and now Amazon can expedite the delivery of those products to people's homes.
Chopped onions for sale are pictured inside a Whole Foods Market in the Manhattan borough of New York City. Online giant Amazon announced Friday it has purchased the grocery chain. (Carlo Allegri/Reuters)
It brings Amazon's capability — you know, fast delivery at cheaper prices — into the market where people really tend to demand that quality of service.
CO: What does it mean for people in smaller centres, in rural communities, where they have a great of difficulty getting access to retail like this?
BS: That's a good point, because Whole Foods does tend to be placed in large urban centres, and in high-income communities where people can afford those products. Look, there's a reputation that has dogged Whole Foods for many years of being a whole paycheque.
That said, this is the beginning for Amazon in the food business. It's not the end.
CO: I guess the big question people always wonder about Amazon is that, is it one day going to own the world? Is it going to be the everything store that it seems destined to be?
BS: I think we're beyond the everything store and we're into the everything company, with its dominance of all other kinds of retail, and its moves into artificial intelligence.
One thing I'll say is it's not just Amazon. We're in a world where the leading technology companies — Apple, Google, Facebook — are swallowing ever greater portions of our economy. The prediction that software will eat the world is coming true.
With files from Reuters. This interview has been edited for length and clarity.