Assignment Instructions
Complete the following for the Module 2 homework assignment:
Read the Amazon Case below and respond to the questions given in full APA/essay format.
This activity aligns with the learning outcome: Evaluate the effectiveness of an existing product marketing strategy.
Amazon’s Acquisition of Whole Foods Market
You want to eat healthy. You want to eat organic, but you don’t want to spend your entire paycheck on groceries. How is it possible to do both? Try Amazon. They are changing the grocery game, again.
Amazon announced on June 16, 2017 their intention to acquire Whole Foods Market, the organic and natural foods supermarket chain, for $13.7 billion. The deal values Whole Foods at $42 a share. Amazon said Whole Foods will continue to operate under its name, as a separate unit of the company, with CEO John Mackey in the lead, and with headquarters based in Austin, Texas.
“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” said Amazon CEO Jeff Bezos. The takeover is slated to be completed in the second half of the year.
Whole Foods was founded in 1978 and is credited with making healthy and organic food become mainstream. The company now has 450+ stores (most in the U.S. but some in Canada and the U.K.) and around 87,000 employees.
“Amazon is placing its bet on the future of the food industry,” says Errol Schweizer, a former Whole Foods executive who is now an industry adviser, “and they see Whole Foods as the leadership.”
Amazon has been slowly entering the grocery market over the past few years, prior to their Whole Foods acquisition. Amazon currently offers its own grocery delivery service, AmazonFresh, and has also been experimenting with online grocery ordering where customers order groceries online and pick them up at a physical location. This deal expands Amazon’s ownership of traditional brick-and-mortar stores.
“Amazon clearly wants to be in grocery, clearly believes a physical presence gives them an advantage,” said Michael Pachter, an analyst at Wedbush Securities Inc. “I assume the physical presence gives them the ability to distribute other products more locally. So theoretically you could get 5-minute delivery.”
The Whole Food store locations offer Amazon a network of distribution centers for which they could send produce, the most challenging part of grocery delivery. Spoilage of fruits and vegetables have not made it feasible in the past.
In addition to physical locations, Amazon will also acquire the asset of Whole Foods’ 365 house brand. 365 is a favorite organic-food brand among customers, and has been virtually unavailable online so far.
“The opportunity to use the 365 brand as a mainstay of their online offering is really profound,” says Bernstein analyst Alexia Howard. “It puts a huge amount of pressure on branded food sales.”
The deal sent waves through the grocery industry. Wal-Mart Inc. shares fell as much as 7.1%, while Kroger Co. fell 17%. When Amazon entered into the book business, prices fell across the industry as publishers and authors had to cut their costs along the book supply chain to remain competitive. Grocery stores are anxious to see if Amazon will have the same effect on their industry.
“I would be terrified if I were a consumer packaged-goods company right now,” says Benzi Ronen, CEO and founder of food hub management software startup Farmigo.
Sources:
B. Kowitt, “Why Amazon’s Whole Foods Deal Is Terrifying Food Makers,” Fortune, June 22, 2017, http://fortune.com/2017/06/22/amazon-buying-whole-foods-disruption/ (accessed June 27, 2017); M. Yglesias, “The real reason Amazon buying Whole Foods terrifies the competition,” CNBC, June 20, 2017, http://www.cnbc.com/2017/06/20/the-real-reason-amazon-buying-whole-foods-terrifies-the-competition.html(accessed June 27, 2017); N. Turner, S. Wang, S. Soper, “Amazon to Acquire Whole Foods for $13.7 Billion,” Bloomberg Technology, June 16, 2017, https://www.bloomberg.com/news/articles/2017-06-16/amazon-to-acquire-whole-foods-in-13-7-billion-bet-on-groceries(accessed June 27, 2017); N. Wingfield, M. Merced, “Amazon to Buy Whole Foods for $13.4 Billion,” The New York Times, June 16, 2017, http://www.cnbc.com/2017/06/20/the-real-reason-amazon-buying-whole-foods-terrifies-the-competition.html (accessed June 27, 2017); P. La Monica, C. Isidore, “Amazon is buying Whole Foods for $13.7 billion,” CNN Money, June 16, 2017, http://money.cnn.com/2017/06/16/investing/amazon-buying-whole-foods/index.html (accessed June 27, 2017).
1.What cultural shift lead to the rise in popularity of Whole Foods?
2. What are some different demographic segmentations Amazon can identify to understand consumer behavior?
3. Explain the differences between Amazon’s and Whole Foods’ markets.
4. Whole Foods has often had a perception of being expensive. How could Amazon’s acquisition of Whole Foods allow them to reposition in the market?
5.Explain the differences in methods Amazon and Whole Foods have available to collect data.
