Introduction
The merger of Amazon Inc and Whole Foods is not related to improving the products, customer service or choice of the market, but it is to destroy the workforce jobs that are provided to service and retail workforce in Whole foods. It is one of the narratives which have been broadcasted on the merger of Whole Foods and Amazon. It is not completely true, but it is also not completely false. The merger of these two giants has many pros and cons with financial, economic, and social implications for the whole country (Perrone, 2017).
Cons of Merger
One of the largest online retailers in the world has now more than 450 brick and mortar stores. Everyone is excited to see this merger while some are worried as well. It is expected that the stores of the Whole Foods will turn into Distribution Centers or there would be shelves populated with Kindle along with the organic food section. When everyone is anticipating what this merger could mean, there are many industries which are now fearfully looking at the situation, remembering the disruptive role of Amazon in the book industry. However, there are many differences in this merger. Firstly, Amazon is not looking to turn the stores into distribution centers completely.
Amazon has purchased the upscale grocery chain Whole Foods for a whopping $13.7 Billion. The first step after the purchase had been the drop in prices of organic staples. Wall- Mart fell by 5 percent and the Costco by 7%. It is said that this deal is going to be the money pit for them. The reason behind this acquisition had been that the food sales have not been shifted to online mediums and Amazon wants to change this. Amazon has opted for Whole Foods for the aim of global domination. It may not work out in the coming few years, but eventually, with time, the scale will increase. Considering this fact that Amazon is now going to have a physical presence in every Zip code of US along with its ability to run the logistics at a huge scale, it can be said that Amazon has gone paces to crush its competition by increasing its sales to the point when the sales start giving profit (Buhr, 2017).
Pros of Merger
One of the pros is that Amazon becomes the national competitor for groceries in one night. Now the giant has the deal dollars to gain profits from selling groceries. Amazon can use Whole Foods for inclining its volume in all of the products, and that would lead to its increase in the deal dollars inflow. Other than this, Amazon also gained a grocery distribution network. Grocery distribution is sensed as the shortest of routes, suppliers, and contractors are preferred over a decade to perfect it. Now Amazon does not have to create one. It will also gain the corporate infrastructure of the grocer as well without needing to build it. Amazon also obtained great locations of stores from Whole Foods, which can now be used to sell other products as well. Furthermore, Amazon can change the brand of Whole Foods in positive ways. Amazon can use its low-price position to change the brand concept of Whole Foods by also including branded consumer products which were eschewed by Whole Foods. Moreover, Amazon can make grocery shopping personalized as well. It can use data-driven personalization to help the consumer find what they have been looking for. The Amazon deal of $13.7 Billion for Whole Foods represent only 65% of the cash which Amazon had on hand while it has only $7.7 Billion of long-term debt. With its $460 Market Capitalization, Amazon can take on more debt without having difficulty in risking its finances (Hartung, 2017).
Challenges after Merger
After the merger of these two giants, the stores of Whole Foods have reported having suffered from a shortage of food. The unhappy customers and empty aisles are because of the inventory management system of Whole Foods. The new system has been rolled out by the old owners; however, Amazon has to fix this issue. The new system was implemented to handle the waste management system of Whole Foods. With this program, the costs of waste have been successfully reduced. However, it has been found to lead to empty shelves and causing low morale in its employees. The strategy of the Whole Food management has certainly not worked out and appears to have backfired. The shortage of stocks and empty shelves has caused unhappy customers, causing the low morale of the employees as well (Keyes, 2018).
Other than this, another problem which Amazon is facing is the quality of its products in Whole Foods stores. Shoppers have been claiming that the food quality of the produce of Whole Foods has declined from the time Amazon has acquired it. Some of these are even threatening to abandon the store. It can be just a matter of perception, as no one has specified what the change is. However, every one of the customers seems to think of Amazon as the culprit. Even though Amazon has not made any changes to Whole Foods until now, the lowered prices, and the broken inventory management system, causing the empty shelves may be the reason for the unhappy customers as well (Peterson, 2017).
After the merger was done, more than a dozen senior managers and executives of Whole Foods left the company. The employees who left the company included the leaders of produce, local food division, sustainability, and bakery. These personnel changes also caused concerns over the employees and the suppliers for the possibility of the loss of the unique qualities of Whole Food with its merger to Amazon (Pymnts.com, 2018).
The lack of transparency of the Amazon for its plan for the future of Whole Foods has also been annoying for the employees at Whole Foods. The Senior Managers also feel uncomfortable reporting to younger executives of Amazon. There also seems to be differences in issues like grooming, and promotion of talent, and focus on employees and customers. The suppliers have also complained about the slow learning process of the sourcing and marketing of the products of the new hires (Pymnts.com, 2018).
Financial Aspect before Merger
Before Merger, Amazon had enough cash in hand to pay for the merger, purchase of Whole Foods Inc. However, it has decided on raising $16 billion for the acquisition of Whole Foods Inc. Financially, for the merger, Amazon has raised $16 billion for the acquisition of Whole Foods with debt which has also included a 40-year bond. It has raised the long-term debt of the company which was relatively not high for a company as huge as Amazon (Cheng, 2017).
Financial Aspect of the Merger
One year after the merger, the stores of Whole Foods look different. Amazon has started selling the Echo and opened its lockers for delivery with signs of a special discount for the prime members of Amazon. Amazon has the customer data of Whole foods which it is used for its online grocery business and its private labels. It has started on the challenge of fresh food delivery again and is committed to being successful in finding a way of delivering fresh produce at the doorsteps of its customers ordered online (Hirsch, 2018).
Conclusion
In the end, it is concluded that whatever the challenges, and whatever the results, it has been established that with this merger Amazon has challenged itself to convince its customers to buy fresh produce and grocery online. While consumers are having perceptions of falling quality of Whole Foods produce and grocery only by knowing that the E-giant has acquired it, Amazon has certainly given it a big challenge.
References
Buhr, S. (2017, August 26). Amazon will lose money on Whole Foods- but probably not for long. Retrieved from https://techcrunch.com/2017/08/25/amazon-will-lose-money-on-whole-foods-but-probably-not-for-long/
Cheng, E. (2017, August 15). Amazon raises $16 billion to fund Whole Foods acquisition with debt that includes 40-year bond. Retrieved from https://www.cnbc.com/2017/08/15/amazons-debt-offering-to-fund-whole-foods-acquisition-includes-40-year-bond.html
Hartung, A. (2017, June 16). The 9 Reasons Why Amazon Buying Whole Foods Is A Good Idea. Retrieved from https://www.forbes.com/sites/adamhartung/2017/06/16/the-9-reasons-why-amazon-buying-whole-foods-is-a-good-idea/#1df159166f15
Hirsch, L. (2018, June 15). A year after Amazon announced its acquisition of Whole Foods, here’s where we stand. Retrieved from https://www.cnbc.com/2018/06/15/a-year-after-amazon-announced-whole-foods-deal-heres-where-we-stand.html
Keyes, D. (2018, January 19). Whole Foods is causing its own stocking issues – but Amazon needs to fix the problem. Retrieved from https://www.businessinsider.com/whole-foods-is-causing-its-own-stocking-issues-but-amazon-needs-to-fix-the-problem-2018-1
Perrone, M. (2017, June 29). The real losers from the Amazon-Whole Foods merger. Retrieved from https://edition.cnn.com/2017/06/29/opinions/amazon-whole-foods-perrone-opinion/index.html
Peterson, H. (2017, December 7). Furious shoppers say Whole Foods’ produce has turned ‘depressing,’ ‘barren,’ and ‘bone-dry’ — and they blame Amazon. Retrieved from https://www.businessinsider.com/whole-foods-shoppers-say-produce-quality-plunged-after-amazon-takeover-2017-11
Pymnts.com. (2018, March 23). More Than A Dozen Whole Foods Execs Have Left After Amazon Acquisition. Retrieved from https://www.pymnts.com/amazon-acquisitions/2018/whole-foods-grocery-chain-executives/
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