WHOLE FOODS MARKET

Under Amazon rule, will Whole Foods still be ‘Austin’s thing’?

Posted September 22nd, 2017

Lisa Lindqvist has shopped at Whole Foods Market for much of her adult life. In that time, the grocer has remained pretty much the same: Organic food. High-end stores. Local feel. Foodie culture.

But much has changed lately, and after Amazon’s $13.7 billion purchase of Whole Foods closed in August, Lindqvist now says she wonders if the Austin-born grocery store she’s grown to love will eventually become unrecognizable.

“It’s nice to have a local hometown player that’s so integrated and entrenched in the community,” Lindqvist, 48, said recently outside the company’s headquarters store at 6th and Lamar in Austin. “From that standpoint, I hope that local feel doesn’t change. I hope that it doesn’t become generic over the years. This is the flagship of this city, and a lot of people are really proud of that.”

In the more than 35 years Whole Foods has existed, the grocer has forged a place in the nation's consciousness as it became the leader in the organic food industry. In Central Texas, Whole Foods formed a legacy as one of the area's most successful business stories.

With its sale to Amazon, however, Whole Foods has lost its local control, and the result has left consumers here and elsewhere, as well as market analysts and even design firms, debating what’s next.

Will the grocer’s identity change? Will its products be altered? What does the sale mean for Austin as a whole?

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From its beginnings as a single store on North Lamar Boulevard in 1980, Whole Foods became a source of civic pride for many in Austin.

As the company grew, its pioneering stances brought the organic food market into the mainstream and turned Whole Foods into a Fortune 500 company.

Four years after opening its first store, Whole Foods began expanding into other Texas cities and places outside of the state. Its large offerings of clean, organic food, combined with its revolutionary store designs, attracted customers.

As it grew, Whole Foods’ co-founder and CEO, John Mackey, acquired a slew of companies throughout the years.

It began with the buyout of Whole Foods Co. in 1988, a New Orleans-based wholesome food store, according to the company’s website.

Whole Foods then acquired North Carolina-based Wellspring Grocery in 1991, and a year later, bought Bread and Circus, then the biggest natural food grocery business in the northeast United States.

Deborah Cannon/American-StatesmanWhole Foods CEO John Mackey speaks at the South by Southwest festival. 

From 1993 to 2007, Whole Foods acquired 12 more natural food or grocery businesses, including Colorado-based Allegro Coffee and United Kingdom-based Fresh and Wild. Its final merger before Amazon came in 2007, with its purchase of Colorado-based Wild Oats Market.

“Before Whole Foods, when people wanted to eat healthy, we had these tiny health food stores run by people who looked like they were going to keel over and die,” said Phil Lempert, a food industry analyst with California-based Supermarket Guru. “They took that concept and made it bigger and brighter and cleaner and staffed it with people who were passionate for clean eating.”

Besides South by Southwest, Lempert said, Whole Foods became “the most recognized company of Austin.”

As Whole Foods acquired companies, its brand surged, with the grocer going public in 1992, launching its in-house 365 Everyday Value line in 1997 and making its first appearance on the Fortune 500 list by 2005. Its stock peaked in 2013 at a trade price of $65.24.

Then the problems began. Whole Foods started seeing sluggish profits at its more than 460 stores while same-store sales, a key indicator of the company’s health, began to dip. As its stock plunged and competitors such as Kroger began catching up to Whole Foods when it came to organic foods, Mackey -- who declined to comment for this story -- began publicly clashing with stockholders and the future of Whole Foods became unclear.

“Whole Foods grew too much for what John Mackey could run,” Lempert said. “He had his ideas, and they didn’t sync up with what Whole Foods could and should be. Mackey saw a different Whole Foods than what it evolved to.”

The grocer’s path drastically changed with its sale to Amazon, which upended the grocery industry and has since seen competitors such as Wal-Mart form partnerships with Google to help with the sale of online products.

(The story continues below)

At the same time, some believe the sale is a hit to Austin’s business image.

Local economist Jon Hockenyos with the firm TXP said the impact has been minimal.

“Austin is not thought of as a town that is driven by large corporate headquarters,” Hockenyos said. “We are not Seattle or Dallas, in terms of major areas that have multiple Fortune 500 companies. What we are is we have a terrific startup culture with a burgeoning tourism economy that has been able to attract major corporations to expand their footprint here.

“In a year or two, we’ll have a better handle on if and how Whole Foods changed in Austin.”

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Already, though, Amazon’s influence on Whole Foods can be seen in its stores.

On Aug. 28, the first day Amazon took over as owner of the grocer, prices were slashed, Amazon delivery lockers appeared at stores and the e-commerce giant promised in a statement that it was “just the beginning.”

Out of 45 items that the American-Statesman price-checked the week before the sale closed, 11 were reduced on Aug. 28, including Coho Salmon, which dropped by $3 per pound, and Hass avocadoes, which went down 70 cents.

Days later, Bloomberg reported that Whole Foods initially saw a 25 percent increase in customer traffic at its stores after the deal closed.

“The biggest dissatisfaction with online retailers is the time you have to wait to receive a product you ordered,” said Utpal Dholakia, a consumer behavior and e-commerce expert at Rice University. “Amazon is trying to create its own (physical presence). Wal-Mart has it. Sam’s Club has it. All of the big retailers had it besides Amazon. So, it made sense that they would, too, and that they would do what they did.”

More changes are sure to come, analysts say.

Sebastian Herrera/American-Statesman Amazon lockers have been installed at a Whole Foods store in Southwest Austin on Sept. 5, 2017.

Some believe Amazon, and its CEO, Jeff Bezos, will quickly bring new talent into Whole Foods’ Austin headquarters while eventually phasing out Mackey, who for now remains CEO. Bezos is known to recruit the best, Lempert said, and that’s what he believes Amazon’s chief is doing now.

The sale of Whole Foods also means that Dell Technologies is the only Fortune 500 company to remain based in Austin. The city has thrived on a healthy startup scene, but it’s also seen brand-name companies like HomeAway be sold off to bigger corporations.

While Amazon has said Whole Foods’ headquarters will remain in Austin, some shoppers see that move as largely symbolic and have doubts that Whole Foods will truly retain the local control its employees are used to having. They’re afraid that Amazon, a more-than-$470 billion company, will drastically alter the grocer’s character.

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Some have already created concepts for what potential changes might look like.

Austin-based design firm Argodesign drew up futuristic products Whole Foods could offer using Amazon’s technology power.

The concepts, which were highlighted in a recent report by Fast Company, include a refrigerator with openings both on the interior and exterior of homes to give access to drones that would deliver groceries, an “Amazon Bin” that would receive reorder instructions and could also serve as a waste service by Amazon, and community gardens that would be operated by Amazon.

Amazon has not contacted Argodesign on the concepts, but the firm’s CEO, Mark Rolston, said his company used practical thinking to create products millions of consumers could use.

“Distribution is one of the highest costs these companies have,” Rolston said. “(Much) of the produce that’s grown never gets eaten. If Amazon could solve that, that’s profit for them. If they can keep more of what they grow and reach customers quicker, that’s what they want.”

Whole Foods will succeed, Rolston said, if it uses technology to enhance its mission of healthy eating and convenience.

“Whole Foods is not just getting food as you know it, but introducing different kinds of eating,” Rolston said. “I hope they continue down that path.”

At Whole Foods’ final stockholder meeting in late August, Mackey joked that the sale of his company was like marrying off a daughter to a nice, rich man.

Because Mackey has no children, the statement was telling. In many ways, Whole Foods was Mackey’s child; his most significant creation.

How that creation evolves remains to be see. People are anxiously waiting.

“This opens up a lot of possibilities,” Kristin Gibbs, a 28-year-old Austin native and Whole Foods shopper said recently outside of a local store. “I trust that Amazon will make Whole Foods expand in ways it couldn’t before.

“Whole Foods will always be Austin’s thing, but now, it’s just thriving in a new way.”

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