The fu­ture of food shop­ping

Ama­zon’s pur­chase of Whole Foods could dec­i­mate other stores, over­haul how Amer­i­cans get their food

USA TODAY International Edition - - FRONT PAGE - Con­tribut­ing: Charisse Jones Zlati Meyer

Ama­zon’s pur­chase of Whole Foods makes it a ma­jor player in the U. S. gro­cery mar­ket, and that leaves a lot for con­sumers and fel­low re­tail­ers to chew on.

Ex­perts say the move will trans­late into lower prices for con­sumers and more com­pe­ti­tion among tra­di­tional su­per­mar­kets, dis­count chains and food- for­ward big- boxes such as Wal­mart. And Ama­zon’s tech her­itage could com­pletely re­fash­ion gro­cery stores, from lay­out to mer­chan­dise mix to how shop­pers get their pur­chases.

Ama­zon is now bring­ing its fire­power to an in­dus­try plagued by thin profit mar­gins. Whole Foods — dubbed by some “Whole Pay­check” be­cause its prices are higher than those of reg­u­lar su­per­mar­kets — has had room to coast on wider mar­gins be­cause it helped cre­ate and grow the or­ganic food space.

But its pro­mo­tion of nat­u­ral foods proved to be such a hit that main­stream stores wanted a piece of this higher- mar­gin ac­tion, too. They’ve in­creased the amount of or­ganic pro­duce, pro­teins and pack­aged goods they of­fer — and that’s cut­ting into Whole Foods’ busi­ness.

“Ama­zon has a great rep­u­ta­tion for value. Bring­ing that mind- think to Whole Foods is go­ing to be a big change,” said su­per­mar­ket an­a­lyst Phil Lem­pert, who founded the in­dus­try web­site su­per­mar­ket­guru. com. “June 16 is go­ing to go down in the in­dus­try as the day the gro­cery busi­ness changed.”

Shop­pers can ex­pect more than just ex­tra money in their wal­lets when they leave their lo­cal gro­cery stores. They might see com­pletely over­hauled stores — smaller foot­prints and larger as­sort­ments of exclusive brands, which is the suc­cess­ful Ger­man ap­proach al­ready in­vad­ing the United States. Lidl opened its first U. S. stores Thurs­day, and Aldi is plan­ning to add an­other 900 Amer­i­can stores and re­model the ma­jor­ity of its 1,300 ex­ist­ing ones.

Ama­zon has its own branded prod­ucts, too, such as pet sup­plies and bat­ter­ies. Whole Foods is al­ready on­board with that; the Austin- based chain has the well- re­garded 365 Ev­ery­day Value brand, which last year it par­layed into a new af­ford­able- price store con­cept called 365 by Whole Foods with four lo­ca­tions across the coun­try and an­other 13 planned.

“Once Ama­zon is a player in the in­dus­try, any­thing can go,” said Joe Ag­nese, se­nior food re­tail­ing an­a­lyst at CFRA. “The big threat is what else they can do. Now that they have a re­tail pres­ence with 400 stores, long- term they can ex­pand on that threat. They can ( bring) pric­ing pres­sure. They could bring down prices, and every­one would have to match them or lose share.”

An­other pos­si­ble in- store change is what food re­tail­ers put on their shelves — and in their re­frig­er­a­tors. Lem­pert pre­dicts stores in­creas­ing the amount of fresh items they sell to as much as 50% — more meat and seafood, baked goods, and ready- to- eat and made- to- or­der foods — while re­duc­ing the amount of low­er­mar­gin cen­ter- store pack­aged items.

That dove­tails with the clickand- col­lect model su­per­mar­kets are us­ing now, which cus­tomers pre­fer to de­liv­ery.

“De­liv­ery is in­ter­est­ing, yes, but click- and- col­lect has more legs. A lot of peo­ple don’t want to stay home and wait, or they think it’s not safe,” Lem­pert said. “In­stacart de­liv­ery will be hurt. It was built on Whole Foods. ... Also, Ama­zonFresh’s de­liv­ery model frankly hasn’t done a good job in per­ish­ables.”

But the Ama­zon- Whole Foods deal could in­vig­o­rate gro­cery de­liv­ery, too. The Seat­tle- based In­ter­net re­tailer is all about send­ing pack­ages di­rectly to your door, and though gro­ceries are too bulky to be de­liv­ered by drone, they’re some­thing shop­pers need to re­plen­ish con­stantly.

“Ama­zon will use Whole Foods as hubs to de­liver into neigh­bor­hoods. Other gro­cers, if they want to com­pete, will have to fol­low suit,” said Neil Saun­ders, man­ag­ing di­rec­tor of Glob­alData Re­tail.

Ac­cord­ing to ex­perts, ware­house stores and dol­lar stores that are sell­ing more food now than in the past have lit­tle to worry about thanks to the lim­ited over­lap be­tween them and Whole Foods. Ditto for Wal­mart.

More main­stream com­peti­tors, es­pe­cially re­gional chains, will need to take a hard look at them­selves, though. The stock price of the coun­try’s big­gest su­per­mar­ket chain, Kroger, dropped 19% Thurs­day — and that was the day be­fore the in­dus­try- rat­tling news was an­nounced.

“We’re go­ing to see po­lar­iza­tion here. Some play­ers, like Weg­mans and Publix, are strongly dif­fer­en­ti­ated. I don’t think they’ll lose be­cause of that. The ones that are not so strong and dif­fer­en­ti­ated are more likely to fall vic­tim to the price squeeze, and you’ll see the shake- out. Other chains will look to buy these chains to con­sol­i­date,” Saun­ders said, point­ing to Buy Low Mar­ket in Cal­i­for­nia and In­gles in the South as ex­am­ples of those that might strug­gle to sur­vive.

One key way Whole Foods has al­ways made it­self stand out is its ethos — a ded­i­ca­tion to healthy eat­ing, sus­tain­abil­ity and an­i­mal wel­fare. That doesn’t com­pletely mesh with Ama­zon’s brand feel. Not yet, any­way. “What’s a lit­tle strange about it is Ama­zon hasn’t nec­es­sar­ily been fo­cused on qual­ity and ser­vice, and isn’t that what Whole Foods’ point of dif­fer­en­ti­a­tion is?” asked Jeff Green, CEO of the Phoenix- based Jeff Green Part­ners, a real es­tate con­sult­ing firm that pro­vides an­a­lyt­i­cal and in­ter­pre­tive ser­vices for re­tail­ers and oth­ers across the U. S. “Ama­zon is smart enough to make it work. Will their model be prof­itable in­stantly with Whole Foods? Prob­a­bly not, but Whole Foods, as it is, is strug­gling.”

GETTY IMAGES/ ISTOCKPHOTO

ROBERT DEUTSCH, USA TO­DAY

Whole Foods has been strug­gling to hold onto cus­tomers.

STEVE HELBER, AP

Ger­many- based Lidl opened its first U. S. stores Thurs­day.

JUSTIN SUL­LI­VAN/ GETTY IMAGES

Ama­zon now has the power to up­end the gro­cery mar­ket.

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