The House of Amazon Goes Organic

“The answer to this question begins with a number.” — Jeff Bezos

Let’s review the bidding.

Jeff Bezos is a brilliant Princeton engineer and the second richest person in the world with a net worth approaching $90 billion. He also happens to own the country’s leading political newspaper, a major movie studio, and an interplanetary exploration company. He is the founder of Amazon.

So what is he doing with a grocery store?

The pundits are asking if the acquisition of Whole Foods Market was done just to increase food revenues for the Amazon shopping site.

Or is there more to the story? Something simple, something right before our eyes. Something he sees and we don’t?

I am inclined to claim this is a revolution in strategy. But Bezos is having a “don’t pay attention to that man behind the curtain” moment.

For inquiring minds, we will need to go inside the Amazon deal, but I’m afraid in order to do that, we first have to get inside the mind of its chief dealmaker.

“There’s only one way out of this predicament,” Jeff Bezos repeatedly said to employees during tougher times, “and that is to invent our way out.”

Jeff Bezos, founder Amazon

During his weekly senior staff meeting, the Amazon chief executive posed a question to the new engineer, “how is your business performing?”

The engineer leaned forward and started by saying… “Well, I can answer that in several ways…,” when Bezos cut him off sharply and erupted at a decibel that was breathtaking even for those who saw it coming:

“The answer to that question begins with a number.”

In Bezos-speak, here is the Whole Foods deal strategy in six key metrics.

1 Single Minded Maniac

Single-mindedness is a quality that may make someone hard to work for and a pleasure to invest with. It can also make someone a great partner if they happen to agree. This describes Jeff Bezos, it also is a spot on description of Whole Foods founder John Mackey. Both are customer fanatics. Their personal synergy is a big deal driver. Below is a chart Bezos drew early on that described his customer centric vision for Amazon.

The Hand-drawn Bezos Chart of Customer Value

2 Day Free Shipping

Customer obsessions aren’t unique to Bezos. People like Steve Jobs and Sam Walton enjoyed the same need to keep shoppers happy. But it was Jim Sinegal, founder of Costco, that had the greatest impact on Bezos. Few people realize that Costco has such a small markup on merchandise they make their profit entirely on membership fees. Sinegal turned shopping into a club, and he made sure the experience keeps membership value strong.

Bezos met with Sinegal and internalized the mantra. You can see it in 2 day free shipping. The secret behind 2 day and Prime is it drives significant multi-shopping or what Walmart would call multiple aisle shopping. This means people buy more so merchandisers are willing to stock inventory inside Amazon’s warehouse. The result is faster shipping and lower prices. A Rube Goldberg machine. Or a Jeff Bezos machine.

He loves that.


3rd Largest Consumer Spend

To use Warren Buffett’s expression, his company is so large they have to go ‘elephant hunting’ to move the needle.

The list of acquisitions targets is a short one when you’re valued at hundreds of billions. Merging two cultures requires such energy, it has to be worth the sacrifice. The purchase price that the media and Wall Street care about isn’t the real game. Employee, customer, and vendor integration issues loom large.

Whole Foods is a win-win here. The company has a strong culture that would easily port over to Amazon. Both companies care deeply about customers. Those are starting points for why this deal made so much sense to Bezos.

The second reason is share of wallet spent on food at a grocery store. Bezos gets to move away from games and books into the mainstream of life with this purchase. That makes Whole Foods a Warren Buffett type deal. Recession proof, fad proof, and now, maybe disruption proof.

Stop thinking of it as just groceries. It’s stuff we eat and drink, the last known legal addiction.

If you add Amazon skill in technology and AI to target, much the way they target book and electronic buyers, the possibilities of drone delivery and intuitive shopping intelligence, Whole Foods looks like a once in a long time opportunity.

There is a stealth benefit few are talking about.

Whole Foods was a great retail grocer, but limited by what Wall Street would allow (CEO and founder John Mackey was always fighting the crush of analyst expectations). Now Amazon can power them with technology and tools they never dreamed of before. Think Tesla meets Jeep.

It gets even more interesting, strategically.

Most people won’t get this right away, but Bezos has a shot at taking away revenue from automotive and delivery services because so much money is ‘wasted’ on getting to and from the grocery store.

Because food is the largest category after housing and transportation, it is a perfect target for Amazon. But with delivery technologies like automation and drones, Amazon can take away market share from other categories. Now he’s eating into not just food but transportation spending. Think about how much auto and gas expense is related to shopping?

That money is now heading towards Bezos.

6th Largest Organic Grocer

While they rank behind Costco and Walmart, and Kroger, Whole Foods dedication to customers of organic groceries is renowned. It owns over 300 stores across the country, making it a decent sized footprint while not being a real estate play, which is not a Bezos goal.

Factor in a reputation for brilliant entrepreneurial leadership, an iconic brand, a Texas culture where Bezos is from (Whole Foods was founded in Austin), and a CEO like Mackey, looking to get Wall Street off his back and cater to customers. The deal starts to make if you will forgive, organic sense.

They are also the most organic of all the other major grocers. It’s not just a section, but the whole store. They offer more organic in their butcher department than most do in the organic section of their market. Every Whole Foods product must be certified organic.

The company is experiencing growth in a down market. Walter Robb, Whole Foods former co-chief executive, said in a recent statement, “We are continuing to gain market share at a faster rate than most public food retailers.”

Bezos gains deep experience in a field he knows little about, food merchandising. There will be no steep learning curve.


11 Segments in The Portfolio

With growth in AWS and fulfillment services, Amazon has to beef up its retail sector with a bold move. Bezos tried partnering as a way around lack of insight into merchandising and vendor relations. It didn’t work and he pulled back both with toys and electronics as a result of weak partner behavior in important categories.

He sees food as strategic, and now he owns a key to the sector that will never go away or become obsolete.


12th and largest acquisition

We know Bezos is making history here, although we aren’t sure exactly how. Bezos is notoriously stingy when it comes to doing deals, he’d rather build.

Amazon was founded on July 5, 1994, in Seattle, WA. Which means Bezos has been waiting all this time, developed the expertise that has made Amazon arguably one of the most innovative companies in history, in order to make his largest acquisition — a grocer. The reason may not be clear, but you can be sure it’s no accident.

To Bezos, this isn’t just an acquisition, it’s organic.




2019 Telly Award; ex-publisher Forbes

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Jeff Cunningham

Jeff Cunningham

2019 Telly Award; ex-publisher Forbes

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