Amazon’s dominance in the world of retail is undisputed.
The e-commerce company has become the go-to source for shoppers in search of everything from books and electronics to clothing and musical instruments. And the company’s announced plan to buy the upscale Whole Foods grocery chain for $13.7 billion has some wondering if traditional grocery stores are about to go the way of Radio Shack or Borders books.
Borders went out of business as a result of competition from Amazon and other online retailers and Radio Shack has also been pummeled by e-commerce competitors. The company announced last month it will be shuttering 1,000 of its stores as it undergoes its second round of Chapter 11 bankruptcy proceedings.
Marlan Clarke, who stopped in at the Whole Foods Market on Arroyo Parkway in Pasadena on Tuesday, is uneasy about the planned acquisition.
“I’m concerned,” the Los Angeles resident said. “Any time a large corporation inhales another corporation there’s a lot of dilution, and I don’t want to see things diluted. When Sav-on was taken over by CVS, things changed. I used to shop at Sav-on. I bought gifts there and they had wonderful seasonal things, but now it’s just this corporate … blueprint. I don’t shop there anymore.”
Representatives from Whole Foods Market could not be reached for comment Friday, but in a statement on their website, co-founder and CEO John Mackey said the partnership represents “an opportunity to maximize value for Whole Foods Market’s shareholders” while also extending convenience and innovation to customers.
A wake-up call
Phil Lempert, a Santa Monica-based expert on marketing trends and consumer behavior, figures traditional supermarkets will survive. But he cautioned that they’ve been put on notice.
“This is game-changing,” he said. “This will go down in history as the day when grocery stores finally woke up.”
The current model of supermarket chains is tired and in need of updating, Lempert said. Amazon’s move will prompt them to move forward with changes they should have already been implementing.
“They are going to have to put in new technologies,” he said. “The supermarket industry has really been kind of boring. This will accelerate growth. We’re going to see a major renovation of stores and major price wars. Jeff Bezos will get Whole Foods to think smarter and be more innovative.”
Lempert said grocery chains will likely do further “right-sizing” of their operations by closing down more underperforming stores.
Many SoCal locations
Whole Foods operates more than 460 stores throughout the U.S., Canada and the United Kingdom and the company posted about $16 billion in sales in fiscal 2016. The company’s Southern California presence includes locations in Woodland Hills, Pasadena, Santa Clarita, Long Beach, Torrance and Tustin, among others.
The acquisition marks a major move into the brick-and-mortar world for Amazon, although the online retailer has experimented by opening a small chain of bookstores across the country. The company also recently opened two drive-through grocery pickup sites in Seattle for customers who order groceries online.
Whole Foods has long promoted itself as “the leading natural and organic foods supermarket,” but Lempert said that dynamic has changed.
“It used to be that when you went to a Whole Foods store, that was the only place you could find those products,” he said. “But now you can find them everywhere like Ralphs or Vons, so you don’t need that price disparity anymore.”
Price drops expected
Amazon’s acquisition of Whole Foods will be a good thing, according to Lempert.
“This will make Whole Foods much better than they have been,” he said. “For a long time they have been known as ‘Whole Paycheck,’ but this will drive down prices and we’ll see much more emphasis on their “365” private-label brand.”
The company unveiled the first of its slimmed-down and lower-priced 365 by Whole Foods Markets about a year ago in Silver Lake. The stores stock about 7,000 products as compared to its regular stores which can have as many as 40,000.
The nation’s grocery industry generates $700 billion to $800 billion in sales a year, and nowhere is the competition more intense than in Southern California.
The Southland is home to such major players as Vons, Ralphs, Albertsons, Stater Bros., Trader Joe’s, Smart & Final, Vallarta and Food 4 Less, among others. And when the grocery sections of Walmart, Target and even 99 Cents Only Stores are figured in … it’s a long list.
But newcomers like Aldi and Grocery Outlet Bargain Market continue to forge ahead with expansions. Grocery Outlet has about 20 locations scattered throughout Southern California, and more are in the pipeline.
“We have grocery stores that will be opening soon in Tustin, Irvine and San Gabriel, and we have three or four more locations we’ll be opening that I can’t say yet because the leases have not been signed yet,” Brian Tademy, the company’s senior field marketing director, said last month. “We’ll have a total of eight new locations opening in Southern California this year and we should be opening at least 10 more next year.”