And then you'll do your left palm.
It's not a TSA checkpoint or the entrance to a high
security area.
Enter the phone number linked to that Amazon
account.
It's grocery shopping at Whole Foods five years after
it was bought by Amazon for $13.7 billion.
This palm-scanning payment option is one big change the
tech giant has brought to Whole Foods.
It's already in 20 stores and it's rolling out to 65
more soon. In two Whole Foods, you can skip checkout
altogether, thanks to a series of cameras and scales
that watch your every move.
When you start using biometrics for payment, like
people rightly so are concerned about that and how
those biometrics are being used.
Under Amazon, prices across the board have dropped some
and the number of locally sourced products has gone up
by 30%.
Aisles are scattered with signs for weekly prime
member deals and shoppers fulfilling online orders.
Amazon packages can now be picked up or returned
in-store. Sixty new Whole Foods have opened in the
last five years, while six locations were recently
closed and there's a new incoming CEO.
Yet Whole Foods still controls just over 1% of the
grocery market compared to Walmart's 19% and Kroger's
9%.
Grocery is one of the biggest challenges they've
undertaken. I personally will be surprised if Amazon
is ever the largest grocer in America.
Here's a look at all the ways Whole Foods has changed
since Amazon bought it in 2017 and whether the deal
was worth it. It all started in
Austin in 1978, when college dropout John Mackey
and his then-girlfriend opened a small natural food
store called SaferWay.
They added a new location and the Whole Foods name in
1980. When the worst flooding Austin had seen in
70 years wiped out the store's inventory, the
community rallied to help it bounce back and it added
new locations by 1984.
It spent much of the nineties acquiring other
natural food chains and expanded internationally in
the 2000s. Whole Foods now has 100,000 employees across
512 stores in the U.S., 14 in Canada and seven in the
U.K.
Whole Foods was a niche grocer and really catered to
a highly affluent grocery shopper that probably had
much better overlap with Amazon Prime members and
Amazon customers in that era than did a traditional
grocer.
Whole Foods is largely credited with taking natural
and organic foods from niche to mass market, but
it's no longer the only one doing it.
Other chains started carrying specialty products,
often at lower prices.
Stiff competition meant that by 2017, investors were
pressuring Whole Foods to sell or change the business
model.
And they were actually closing stores and cutting
costs. And Amazon loves a deal.
So in June 2017, Whole Foods accepted Amazon's $13.7
billion offer.
If you are in grocery, you are on top of mind for the
consumer every week, so grocery is a must win
battlefront for them.
After the deal closed five years ago on August 28,
Whole Foods started making inroads with new customers
by offering speedy free deliveries through Prime
Now. It added one-hour grocery pickup at all U.S.
locations by October 2020.
But the two companies didn't align on every strategy
right away.
Amazon is known for low prices and Whole Foods is
known for whole paycheck, so it was anything but low
prices. And so how do you sort of reconcile with that?
Guru Hariharan spent six years at Amazon before
running e-commerce management platform
CommerceIQ. He says that Whole Foods' own 365 brand,
what's known as a private label, has helped it cut
costs.
What Amazon has been slowly starting to do is replace a
lot of the purchases in Whole Foods with this
private label brands, and that has allowed them to
bring prices down.
However, from a national brands perspective, those
prices have not necessarily gone down.
If anything, because of the quantitative easing and the
inflation, they've actually gone up in the recent 12
months.
And with soaring inflation, customers are especially
likely to shop based on value, not something
typically synonymous with a store nicknamed "whole
paycheck" that once gained infamy for selling $6
asparagus-infused water.
An Amazon spokesperson told CNBC in a statement that its
goal in the acquisition was to make high quality,
organic foods more affordable and accessible
for everyone, and that it's since lowered prices
across aisles at Whole Foods Market, offered Prime
membership discounts and Prime member deals in
stores.
On the flip side of enticing customers with good deals,
Amazon also started focusing on selling products
that bring in bigger profits, something that's
especially difficult in grocery.
You sell a lot of dollar bananas that you pay $0.99
for, so you have to be really efficient to make
money. And the vast majority or a good chunk of
the things you sell are perishable.
So it's really the hardest category of retail for the
lowest amount of profit.
But selling private label goods offers more control
and higher profit margins because it cuts out the
middleman. In 2020, Amazon gave Whole Foods' 365
private label a brand refresh, and in 2021 added
300 new products.
There are now 2,200 products with the 365 label
on Whole Foods shelves.
That takes a level of investment that probably
Whole Foods could not afford or take bets on, but
now they can.
The boost to 365 is no surprise under Amazon, which
has at least 111 private label brands like Amazon
Basics and Solimo for household goods and Amazon
Essentials for clothes.
Amazon's also been accused of using its data prowess to
give its in-house products an unfair advantage.
Let me ask you, Mr. Bezos, does Amazon ever access and
use third-party seller data when making business
decisions? And just a yes or no will suffice, sir.
I can't answer that question yes or no.
What I can tell you is we have a policy against using
seller-specific data to aid our private label business.
Another way Amazon has cut Whole Foods costs is by
centralizing some operations, moving them from
individual stores to its Austin headquarters.
This means stores have lost some individual touches,
like hand-drawn chalkboard signs or storytelling for
children. But it has not become a conventional
supermarket like some predicted. Despite
streamlined operations, Whole Foods says small
regional suppliers have not been swapped out for bigger
contracts and that it's added 3,000 local brands in
the past five years, a 30% increase since before Amazon
took over. Each region has teams of full-time
"foragers" who look for new local products.
Whole Foods says the model gives flexibility for
different merchandise to be carried in different stores,
so smaller brands can remain within a few stores
rather than supply products company wide.
And Amazon's massive amount of data now helps optimize
what brands are sold in what stores.
Going into a Cupertino store is a very different
experience versus walking into a Los Altos or a Los
Gatos store in the same Northern California region.
And they are probably doing a better job because of the
personalization algorithms.
Since the 2017 Amazon deal, Whole Foods has more than
doubled its list of banned food ingredients, bringing
the total to more than 250.
It prohibits things like hydrogenated fats, high
fructose corn syrup and artificial sweeteners, and
meat must be free of antibiotics and added
hormones. Also, since the acquisition, Whole Foods has
enhanced the standards for canned tuna, eggs and
chicken. And in 2019, it minimized plastics with new
types of produce bags, rotisserie chicken
containers and straws.
There's also a new accelerator program for
local producers to earn a spot on the shelves of their
local stores and certified training programs to turn
hundreds of Whole Foods workers into accredited
cheesemongers and butchers.
While some of the hot food bars, free samples and
specialty chef counters went away during the
pandemic, Whole Foods says they're back.
The associates in Whole Foods are probably the most
helpful comparing to your other grocery chains.
That's not changed at all.
However, what has changed is that ability to scale.
Now they have a huge bank balance and a balance sheet
behind their ability to scale, and we are seeing a
lot more experiments that they're taking.
The most visible of these experiments is the rollout
of convenience-boosting tech, from the palm-scanning
Amazon One to the hundreds of cameras and sensors that
allow checkout-free Just Walk Out shopping.
Waiting in a grocery line, how do you take that
bottleneck out of a shopper's experience?
Well, that's a very hard problem to solve.
But guess what? Amazon has solved a lot of these hard
problems through technology.
And Amazon isn't the only one that's doing
checkout-free shopping.
Good. JD Falcão runs the tech at AiFi.
It's a competitor to Amazon's Just Walk Out
system and it's operating in 84 stores so far.
Now every camera is following me and tracking me
throughout the store and knows that I'm close to
objects or how I interact with them.
AiFi has eliminated checkout at Aldis in Europe,
concession stands at the Detroit Lions stadium, 50 of
Poland's largest convenience stores and gas
station mini-marts like this one.
If I'm here and I reach for the yogurt, you can see that
it highlights that I'm interacting with that area
and it gets darker and darker the more confident it
is that I'm interacting with that object.
AiFi keeps costs down by only using cameras.
There are 109 cameras in this 1,600-square-foot store
in Union City, California, while Amazon also relies on
additional hardware like weighted shelves.
The question is, is it affordable?
And do the unit economics work?
And once you pass that barrier, the question is,
are customers going to adopt this?
Are they willing to go into a store that has this many
cameras, and are they willing to download an app?
Falcão says it hasn't fazed shoppers in stores with
AiFi's autonomous shopping systems.
You'd buy more products because you never look at
your wallet. We've seen 20% basket increases over when
the store has been running for a while.
We also see that you have clients come in and then
they stick. It's a sticky technology.
They like it, so they come back.
And as I walk out, it will immediately tell me that my
transaction is done and will send me a receipt.
Back at Whole Foods, Amazon's Just Walk Out tech
is only available at two stores for now: one in LA
and one in D.C.
Amazon wouldn't give us an official tour, so I tried it
out on my own. Hundreds of cameras watched my every
move while I picked up produce and baked goods, an
associate told me almost everything was also being
weighed by hidden scales that could identify the
moment a bag of potato chips left the shelf.
I exited smoothly through the Just Walk Out
turnstiles, paying with my palm.
But because I'd left the highly monitored part of the
store briefly, I accidentally got mischarged.
The first version of any of these things, that kind of
day one experience as Amazon likes to call it, are
always going to be imperfect and have the
potential to put customers off if it's really bad
enough.
The new tech has also raised data and privacy concerns.
Amazon says any sensitive data is treated in
accordance with its longstanding policies, like
only sharing aggregate, anonymized insights with
brands.
Amazon has monetized that data, they anonymize it, and
they now sell it back to CPG brands to teach them how
people are shopping their categories.
Privacy concerns have been mounting because Amazon
already collects data from millions of online shoppers,
from Alexa devices, Ring doorbell cameras and soon
room-mapping robot vacuums.
It's very rare that a grocer also has this incredible
digital technology offerings that can help it
get through more difficult periods. And I think there
is a feeling that with their technology expertise,
they can identify elements of scale and profit
maximization that maybe others can't.
Amazon is also selling the palm scanning tech to
outsiders. But in March, one customer, Red Rocks
Amphitheatre in Denver, backed out of the deal after
activist groups and musicians like Rage Against
the Machine voiced concerns that Amazon would share palm
prints with government agencies. Amazon has another
experiment in removing the checkout bottleneck that
doesn't use biometrics.
The Dash Cart tracks and tallies items as shoppers
place them in the cart. Although it's currently
limited to a small amount of groceries and can't go
out to the parking lot to be unloaded.
The Dash Cart is coming to its first Whole Foods in
Westford, Massachusetts, soon.
Amazon's push to expedite the grocery shopping
experience isn't limited to in-store.
Whole Foods told CNBC it delivered three times as
many online orders in 2020 as it did in 2019.
And the more stores it has in close proximity to
customers, the faster and more affordably it can get
those online grocery orders delivered.
Whole Foods says its 533 global stores can now serve
more than 170 million customers.
Orders are shifting online, but they're generally not
profitable. So every grocer in America is interested in
digital grocery. They're trying to capture that
digital grocery customer, but they're also trying to
figure out how to make it more profitable.
But for those shopping in stores, there's a flip side
to this focus on online orders.
Competing with professional shoppers like is moving up
on the frustration scale for many, many consumers.
And that's part of the reason that some retailers
have experimented with either dark stores or
fulfillment centers versus fulfilling out of live
stores, is to to mitigate that negative customer
experience.
Whole Foods has one of these dark stores in Brooklyn.
It's closed to customers and is completely dedicated
to preparing delivery orders. Goldberg says
Walmart, Albertsons and Kroger are experimenting
with automated versions of these, too.
They have a lot of new operating costs and
challenges, but when they work well, they have the
potential to cut 90% off of the labor costs of picking
that order.
Instacart used to have an exclusive deal to fill Whole
Foods online orders, but that came to an end the year
after Amazon took over.
Now, Amazon has transitioned the majority of
those gig workers into official Whole Foods
employees. Another set of employees is in charge of a
desk in many Whole Foods where Amazon.com customers
can pick up packages and drop off returns, often
without a box. More traditional Whole Foods
roles also changed with Amazon.
A year after the purchase, a group of Whole Foods
workers emailed thousands of fellow workers with a
list of grievances stemming from Amazon's takeover,
including the removal of some stock options and
constantly being asked to do more with less resources
and now with less compensation. Some workers
tried to unionize under the large Retail, Wholesale and
Department Store Union, but those efforts have stalled.
Whether the acquisition has been a plus for Whole Foods'
business is hard to answer definitively because Amazon
rolls its sales data into a broad physical stores
category alongside its 60 Amazon Fresh grocery stores,
an Amazon Style clothing store, and 25 smaller Amazon
Go stores. But Whole Foods has by far the biggest
number of stores. And Q2 earnings saw physical store
sales rebound, growing 12% year over year.
Ethan Chernofsky analyzes consumer trends at
Placer.ai based on aggregate location data from
30 million devices.
He's found the number of visits people make to Whole
Foods is bouncing back slowly from the pandemic
dip, hovering at about the same level as July 2017,
before Amazon took over.
Since the start of the pandemic, Whole Foods was
one of the harder-hit groceries, and its recovery
trend has been less strong than others.
Q1 earnings this year showed Amazon's first quarterly
revenue loss in seven years.
Days later, it announced the closure of six Whole
Foods. Then in Q2, Amazon saw better than expected
revenue. In April, Amazon announced the shutdown of 68
non-food focused retail locations, narrowing its
brick-and-mortar game to focus more on grocery.
It closed down all Amazon Books, 4-star and Pop-Up
shops. Since then, it's opened seven new Amazon
Fresh stores, a more mainstream grocer with 41
stores in the U.S. and 19 in the U.K..
You have the potential for this three-pronged approach
to attack grocery, which is Amazon Go as this perfect
urban quick in-and-out opportunity, then Amazon
Fresh as convenience, value-oriented, going into
the suburbs and in some urban areas as well, but
this widespread Amazon play .
And then the potential to allow Whole Foods to be what
it was before.
And I think that mix could be incredibly potent.
Still, Amazon's physical stores have lagged compared
to its overall retail business, reporting lower
sales in 2021 than 2018.
One possible explanation for some of that shrinkage is a
lot more people learned how to order groceries online
from Whole Foods. And when they did that, Amazon.com
got credit for the sale, and Amazon's physical stores
lost credit for the sales.
Meanwhile, Whole Foods told CNBC it's got 50 new stores
in the works for fast-growing regions.
And with the September 1st departure of co-founder John
Mackey, Whole Foods is losing the only CEO it's had
in its 44-year history.
It's really impressive that John stayed around in a
leadership position as long as he did.
It surprised me.
The colorful, polarizing Mackey is being replaced by
current COO Jason Buechel, as Whole Foods enters
uncharted territory and the second half of a decade
under the watchful eye of Amazon.
I think some of these elements are going to be
very successful. I think others are not going to be.
But I think the one thing we know about Amazon is
they're going to learn and learn quickly and we're
going to see a very decisive company in the way
they interact with the grocery space.