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Five years later, how is Amazon's sky-high deal going?

In the last week of August 2017, US e-commerce and cloud computing giant Amazon officially completed the acquisition of whole Foods (Whole Foods), bringing the high-end US organic fresh supermarket chain into its e-commerce empire. This is the largest acquisition in Amazon's history and the most important step Amazon has taken so far to expand its offline business.

On June 16, 2017, Amazon suddenly announced that it would buy whole Foods, a US high-end organic fresh supermarket chain (which also has operations in Canada and the UK), for $13.7 billion per share. Whole Foods will operate as an independent subsidiary of Amazon. The sky-high offline acquisitions of e-commerce giants have not only triggered a lot of speculation, but also have a profound impact on the US antitrust regulatory system in the future.

In fact, the deal was not intended by Bezos, but was sold by John Mackey, co-founder and CEO of whole Foods, who contacted Bezos through a middleman. Bezos asked the negotiators to keep it a secret and threatened to cancel the acquisition directly if word got out; the two sides named it Project Athena in the course of the negotiations. As a result, the deal came as a surprise to many people without warning until it was officially announced by both sides.

As the richest man in the world, Bezos is often peddled by sellers. In 2013, the Graham family of the Washington Post, the most politically influential newspaper in the United States, took the initiative to contact Bezos to sell the Washington Post Company for $250 million. The acquisition of one of the three mainstream media by the richest man in the United States has made many people doubt Bezos's ambitions. Due to the political turmoil brought by the Washington Post, the deal caused Bezos a lot of trouble, even directly related to his subsequent affair scandal and divorce, and made him and Amazon a thorn in the side of former US President Donald Trump.

High-end supermarkets offer to sell so why does whole Foods, headquartered in Austin, Texas, take the initiative to sell as Amazon? Because McGee and whole Foods were in a difficult stage at that time: the business was not only facing fierce market competition, but also under pressure from the board of directors of active investors. As a result, Markey sees selling to Amazon as the best solution.

Although the 40-year-old whole Foods supermarket is the first to start the brand of high-end organic fresh supermarket, with the growing market scale of organic fresh, more and more competitors begin to enter this high-end market segment. These big competitors are in a stronger position to offer more attractive prices and a wider network of stores than whole Foods.

The business pressure on whole Foods is real. In the year before Amazon's acquisition, same-store sales at whole Foods fell 2.5%; in the quarter in which Markey took the initiative to contact Bezos for sale, same-store sales at whole Foods fell 1.5%, the sixth consecutive quarterly decline in revenue. In the face of declining performance, whole Foods announced the closure of nine stores in the first quarter of 2017 and cut its global revenue forecast.

As both performance and share prices were lacklustre, active investors and hedge fund Jana Partners began to put pressure on whole Foods's board of directors to make strategic changes and to force Markey to step down. It was against this background that Markey approached Bezos to discuss the sale, hoping that e-commerce giant Amazon could reverse the declining business of whole Foods and keep his job on the board.

So why would the shrewd Bezos spend $13.7 billion on whole Foods, which is under pressure? Amazon, the e-commerce giant he founded, has always been known for its price-friendly brand, while whole Foods is a notoriously expensive offline fresh supermarket. There are obvious cultural differences between the two companies, raising doubts about Amazon's ability to integrate this offline business.

The high-priced goods in whole Foods supermarket have aroused heated discussion and ridicule on the Internet in the United States, and have been ridiculed as "IQ tax" products. Three asparagus are soaked in a bottle of pure water for $6. The typical consumer at whole Foods is a 29-year-old young white-collar worker with an annual salary of more than $80,000, who shop in the store every three weeks, spending an average of about $46, according to market research firm Numerator.

But the deal is of great value to Amazon. Whole Foods had more than 400 stores in the United States at that time, and because of its high price, whole Foods stores were only opened in the wealthiest cities in the United States, and its customer value was among the highest in supermarket chains. This is in sharp contrast to Wal-Mart, which is mainly inexpensive and friendly to the people.

With whole Foods, e-commerce giant Amazon has officially extended its tentacles offline. With whole Foods, Amazon has a complete offline service network in wealthy parts of the United States, which can fully land its sales, delivery, returns and services on the basis of whole Foods stores, opening up the "last kilometer" that e-commerce craves most.

Promoting antitrust regulatory reform Amazon's acquisition of whole Foods has also directly promoted a change in the concept of antitrust regulation in the United States. Amazon accounts for more than half of U. S. online retail sales, several times that of many of its competitors. Now the e-commerce giant has reached out to the offline, which has not only shocked the offline retail industry, but also triggered the discussion of antitrust regulatory standards in the United States.

According to the antitrust standard of the traditional Chicago School, Amazon and whole Foods hardly overlap with each other, and Amazon will not dominate the offline fresh market after the acquisition, but will help to reduce the price of whole Foods. Therefore, this acquisition is conducive to market competition, is conducive to the interests of consumers, and will not pose a monopoly threat.

It was under such regulatory standards that the Federal Trade Commission (FTC), the US antitrust regulator, did not dispute the acquisition during the regulatory review period, and Amazon successfully completed the deal two months later. By contrast, AT&T 's acquisition of T-Mobile in 2011 and Nvidia's acquisition of Arm in 2020 were aborted because of FTC's firm opposition.

In 2017, when Amazon bought whole Foods, Lina Khan, an obscure Yale schoolgirl, published an antitrust paper, Amazon's antitrust paradox (Amazon's Antitrust Paradox), directly challenging the antitrust philosophy that has dominated US regulation for decades.

Lena Khan believes that the antitrust standards of the traditional Chicago School are no longer suitable for the current Internet platform. She analyzed Amazon's business and competition model, and pointed out that although Amazon temporarily allows consumers to enjoy low prices by reducing prices, its platform continues to strengthen its monopoly advantage, which actually reduces market competition and is not conducive to the long-term interests of consumers. She wrote a column in the New York Times and took a clear-cut stand against Amazon's acquisition of whole Foods. She criticized FTC's regulatory decision to approve Amazon's acquisition of whole Foods for being naive, allowing Amazon to continue to expand its monopoly power in e-commerce and logistics.

The 27-year-old Lena Khan became famous for this paper and became a representative of the "Neo-Brandez School" in the antitrust field. She also attracted the attention of progressive leftist politicians such as Democratic Senator Elizabeth Warren (Elizebeth Warren), paving the way for later entry into politics. Since Biden came to power, hawks have been appointed to positions of real antitrust power. The 31-year-old Lena Khan won the most important nomination as chairman of FTC, the antitrust regulator.

It was Lena Khan who led FTC to sue against Nvidia's acquisition of Arm, forcing Huang Renxun to abandon the deal that rocked the chip industry. Also driven by the appeal of Neo-Brandes School regulatory scholars such as Lena Khan and Wu Xiuming (professor at Columbia University and special assistant to the president in charge of market competition on the National Economic Council), the US Congress is actively revising antitrust regulatory laws to prevent technology giants from expanding their business territory through mergers and acquisitions and curb the growing economic and social influence of technology giants.

It has been five years since the local time of organic health. How is the operation of whole Foods supermarket under Amazon's control? When it was acquired by Amazon, whole Foods had 400 stores, adding 60 in the past five years, bringing the total number of stores worldwide to 533 and its user base to 170 million.

Even with a global logistics giant like Amazon as the backstage, whole Foods supermarkets still operate independently and adhere to their own localized fresh positioning. Over the past five years, the number of local brands sold at whole Foods has increased by 30%, equivalent to more than 3000. Even in the two neighboring cities, the two whole Foods supermarkets sell different local goods.

In addition, whole Foods has raised food standards across the board over the past few years: it has doubled the number of unhealthy foods it refuses to sell to more than 250; foods containing hydrogenated oils, high-fructose corn syrup and artificial sweeteners have been shut out. The standards of fish eggs and chicken sold in whole Foods are higher than the market regulatory standards, and meat must be completely free of antibiotics and hormones.

Perhaps the most direct manifestation of Amazon's ownership is that whole Foods has become an offline return and pick-up point for Amazon, where consumers can directly return products ordered on Amazon. In addition, whole Foods has also become a website for selling Amazon's own-brand goods. Amazon Prime members can enjoy a 10% discount and extra special discounts at whole Foods.

Amazon used to have its own online fresh business Amazon Fresh. After the acquisition of whole Foods, Amazon Fresh and whole Foods did not merge, but belong to two completely separate businesses, with their own warehousing and shipping facilities. Market research shows that the user groups of Amazon Fresh and whole Foods are also different. The income of Amazon Fresh users is lower than that of whole Foods consumers, and the population composition is more diversified.

When Amazon was exploring new technologies and announced the sale, McKee said that the cooperation with Amazon would bring more technological innovation. Indeed, over the past five years, Amazon has been introducing its new technology to whole Foods, hoping that the organic supermarket chain will also be cooler in terms of consumer experience.

Over the past few years, Amazon has been exploring a more convenient and unmanned shopping experience, piloting and deploying in brick-and-mortar stores such as Amazon Go, Amazon Fresh and whole Foods. As one of the physical stores with the largest customer traffic, whole Foods supermarket plays a key role in Amazon's exploration of new shopping technologies.

Starting from March this year, Amazon began to pilot Amazon GO non-collection payment in whole Foods. Users only need to carry a smartphone, verify their Amazon account through the Amazon Go app, and check out without payment. Mobile apps will instantly deduct fees from credit cards bound to Amazon accounts. In addition, Amazon One palmprint payment is also a cool payment technology introduced by Amazon to whole Foods. After users enter their palmprint on Amazon One, they can pay by swiping the palm of their hand. At present, more than 20 whole Foods supermarkets have introduced palmprint payment, and more than 60 stores will be added this year.

These new technologies will also be controversial for Amazon. At a whole Foods supermarket in Washington, D.C., Amazon deployed Just Walk Out payment technology, which allows consumers to leave with goods without even needing a self-help scan. But the technology has set up hundreds of cameras in supermarkets to monitor consumers' every move to choose goods on the shelves in real time, sparking protests from privacy activists.

Dash Cart is also a new technology that Amazon is about to pilot at whole Foods. The technology sets sensors on the shopping cart, and consumers can pay and leave directly in the shopping cart using their mobile phones. Because there is no camera to monitor consumers, Dash Cart technology controversy is relatively low, and the possibility of future deployment will be much smoother than Just Walk Out.

In addition, whole Foods has made great progress in its e-commerce business. Thanks to the online shopping demand brought about by the COVID-19 epidemic, online orders at whole Foods supermarket more than tripled in 2020. In response to the distribution demand in the New York area, whole Foods has also opened a closed store in New York to meet online orders. Before the COVID-19 outbreak, online sales accounted for only 2-3 per cent of the US $800 billion grocery market. But by 2021, the proportion had risen sharply to 10-11%. Thanks to Amazon's distribution network, whole Foods supermarkets in more than 60 cities have launched a "two-hour home delivery" service for Prime Now members.

The road to offline expansion has been thwarted while Amazon is actively exploring its brick-and-mortar store business while buying whole Foods. In the past few years, Amazon has opened more than 60 Amazon Fresh stores, 25 Amazon Go stores and 1 Amazon Style clothing store. Add in previous brick-and-mortar bookstores, 4-star evaluation stores and in-store stores, and Amazon has more than 150 physical stores (excluding whole Foods stores).

However, Amazon's offline business development does not seem to be entirely satisfactory. In March, the president of Amazon's retail business quietly resigned after it reported its first loss in seven years. Amazon then announced the closure of all 68 brick-and-mortar bookstores, 4-star review stores and in-store stores. But other types of offline stores will continue to operate.

Whole Foods, Amazon's most important offline business, doesn't seem to have improved significantly. Whole Foods is at the same level as it was before it was sold in 2017, according to a Placer.ai traffic survey in March this year. This month, whole Foods announced the closure of six underperforming stores for the first time since it was sold in 2017.

Whole Foods now accounts for only 1% of u.s. food sales, according to market research firm Numerator. If you add in online business, e-commerce giant Amazon has just over 2% of u.s. food sales. Retail giant Wal-Mart, by contrast, has a 19% market share in the U.S., and 9% of Krogerstores. However, Wal-Mart has more than 2800 stores in the United States.

Like domestic e-commerce giant Alibaba holding hands with many department stores, Amazon also has the dream of "new retail", trying to organically combine its dominant online business with offline brick-and-mortar stores through mergers and acquisitions. Through new technology to achieve online and offline integrated shopping experience. The $13.7 billion acquisition of whole Foods is the most crucial step in Amazon's offline shopping exploration.

Five years on, whole Foods doesn't seem to have changed much, but Amazon's new technology has been injected everywhere. It is worth mentioning that in September, the 42-year-old whole Foods supermarket will usher in its second CEO. McKee, a 69-year-old co-founder, will step down as CEO and hand over management of the company to 37-year-old COO Jason Buechel. Perhaps under Butcher's leadership, whole Foods will deploy Amazon's new technology more aggressively and quickly.

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