To market we go
Amazon is buying Whole Foods. So what does that mean for the evolution of Houston grocery stores?
When Amazon announced that it is buying the Whole Foods chain for $13.7 billion, I was intrigued — and also concerned. The idea, apparently, is to make the grocery industry more efficient and to grow the burgeoning grocery-delivery business.
Efficiency is nothing new to grocery stores. For the past hundred years, it’s driven changes to the industry. (Or “disruptions,” as tech entrepreneurs say.) In general, the companies become ever larger, able to deliver food ever more cheaply.
Consider Houston’s grocery history. During the first quarter of the 20th century, small mom-and-pop grocery stores ruled. In 1922, Houston had 775 grocery stores to serve a population of 138,276: That works out to one store per 178 residents.
A few were local and regional chain stores, but the majority were independently owned. Most offered a limited selection: flour, tea, coffee, sugar and pickles sold in bulk, a few canned items, and maybe some produce or meat. Lack of good refrigeration limited your choices. Most residents lived within walking distance of a store, and many stores offered delivery.
By 1950, the age of the supermarket had dawned. Though Houston still had many independent grocers, national and local chains, like Henke & Pillot and Weingarten, had opened more and
larger stores with a wider array of packaged products, as well produce and meat in refrigerated cases. In 1954, Houston’s population had increased to 596,163 residents, but the number of grocery stores had only grown to 1,300: one store per every 459 residents.
Since then, stores have continued to grow fewer but larger, better stocked while also seeming more generic and soulless. In 2011, Houston had one grocery store for every 1,200 residents. Those stores tend to cluster in wealthier neighborhoods.
This is the retail grocery landscape that Amazon seeks to disrupt.
Late to the game
The Houston area’s diversity may offer a unique set of challenges for Amazon: markets that Whole Foods isn’t currently serving. Many Houstonians cook the cuisines of their homelands, shopping at stores like Fiesta, Ranch 99, Mecca Halal Meat and Supermarket, H-Market, the stalls behind Canino’s, Pyburns or Keemat.
And as the U.S. catches up to Houston’s racial and ethnic mix, reaching these customers may be key to grocery success.
But even if we focus on the wealthier, whiter Houstonians who shop at Whole Foods and its upscale competitors (Central Market, H-E-B and Kroger’s tonier stores), you could argue that Amazon is late to the grocery game.
Amazon’s major retail competitors — big-box stores such as Walmart, Costco and Target — long ago made major inroads into the business. They’re able to provide consumers one-stop shopping, cheaper prices, and/or bulk packaging and purchasing.
Walmart, the No. 1 player in the U.S. grocery business, controls 14.5 percent of the market. Whole Foods only has a 1.2 percent share of the U.S. grocery business, and Amazon currently controls 0.2 percent. Combined, that’s less than onetenth of Walmart’s share alone.
But the industry is in flux. Recently, grocery-delivery services have been making a comeback. Lately, every third person at H-E-B seems to be pushing two carts and sporting the green T-shirt of the $3.4 billion grocery-delivery start-up Instacart, which was founded by former Amazon employee Apoovra Mehta. Instacart recently inked a fiveyear deal with Whole Foods — a partnership that is likely in jeopardy, since Amazon has been flirting with its own grocery delivery service.
Though the online grocery business currently accounts for about 7 percent of sales, it seems clear that Amazon sees grocery, even with its notoriously low margins, as an area of potential growth. And Amazon isn’t alone: Even Google has ventured into the grocery-delivery business, and several pre-prepped-mealdelivery businesses, such as Blue Apron, are trying to grow their market share.
By purchasing a wellestablished brand with brick-and-mortar locations in high-end neighborhoods throughout the U.S., Canada and Britain, Amazon is well placed to leverage its extensive warehouse and delivery system to dominate the high-end grocery market — both for delivery and for brick-andmortar stores.
Amazon has been laying the groundwork for food delivery for several years, says Robyn Metcalfe. Metcalfe is the director of the nonprofit Food+City and a food researcher at the University of Texas at Austin. But Amazon still has work to do, she wrote in an email:
“It will need to build out its cold chain infrastructure. Walmart, Aldi and others are working on the Last Mile delivery with ideas such as drive-through kiosks and chilled storage boxes located where consumers already are, such as parking lots near subways. Sensors and real-time tracking of temperatures inside packages will supercharge this new marriage.”
Prices and jobs
What impact will Amazon’s acquisition of Whole Foods have on Houston? Based on Amazon’s track record, it’s a good bet that they’ll make significant changes to the way that some Houstonians acquire food. But whether those changes are good or bad is another matter all together.
In the best case, Amazon’s hyper-efficient warehouse and delivery infrastructure could bring lower prices. And that could do a lot to win back the customers Whole Foods has been losing.
I’m one of them. For produce, I shop at farmers markets, supporting small local producers and tiny independent businesses directly. I used to turn to Whole Foods to fill in gaps — you can’t buy paper towels or flour at a Houston farmers market, and I appreciate Whole Foods’ smaller stores, the quality of many of their products, the usually friendly staff and the fact that I can stroll the aisles while drinking a beer. But that upscale experience isn’t enough to overcome the prices: I can purchase what I need at H-E-B or Fiesta for nearly half the cost.
Will greater behind-thescenes efficiencies be enough to make a difference to the prices consumers pay? This isn’t the book business of the 1990s: Amazon is entering the grocery business after its competitors have already adopted many of the technological improvements in warehousing and delivery systems methods that Amazon itself pioneered. This time, what Amazon brings to the table (pun intended) appears to be not so much backstage innovation but market muscle and brand loyalty.
The most obvious sources of new efficiencies at Whole Foods could involve cutting jobs. Amazon has already experimented with a grocery concept called Amazon Go, which eliminated cashiers by using various technologies to charge you by tracking what you remove from the shelves.
And it’s not just Whole Foods employees whose jobs may be in danger. Margins up and down the food-supply chain are razor-thin, especially for the local farmers and small, local vendors that Whole Foods has at times supported. Amazon has used its market might to negotiate lower prices with major publishers and other vendors, which has left a bad taste in the mouth of authors, publishers and bricksand-mortar retailers. Will the company apply the same pressure to farmers and food vendors?
Will the local Houston products currently carried by Whole Foods still make sense for Amazon’s highly automated warehouses? Will they develop a system that will make fresh produce available at reasonable prices to people of all demographics while ensuring farmers make a good living?
On Friday, California restaurateur and farm-totable advocate Alice Waters encouraged Amazon CEO Jeff Bezos to do just that: “You have an unprecedented opportunity to change our food system overnight: It is time to demand that produce comes from farmers who are taking care of the land (and) to require meat and seafood to come from operations that are not depleting natural resources.”
That’s an extraordinarily tall order, and it may be too much to hope for. But for now, as we wait to see how the deal plays out, we’re free to hope.