Dear Doug:
While unknown sources say that Walmart is not interested in making a bid for Whole Foods, I’m sending this note anyway, hoping you have not made that decision yet.
Steal the Whole Foods deal away from Amazon!
Reach down into your deep pockets and outbid them with a vengeance. Even though it’s been rumored that Target, Costco, or Kroger might jump into a bidding war to stop Amazon’s relentless effort to leapfrog itself into the grocery space, Walmart is the only likely candidate to have the financial muscle to do so, according to JP Morgan. Do the math: At the current offer of $42 a share for Whole Foods, it comprises only 3 percent of Amazon’s market cap and only 6 percent of Walmart’s. It would match 64 percent of Kroger’s, 48 percent of Target’s and 19 percent of Costco’s.
Regardless of Walmart’s financial capability to win a bidding war, I believe there are strategic synergies and opportunities to be gained as well. It’s pretty clear that your and Marc Lore’s apparent race is to become Amazon’s biggest nightmare at the least, and to eventually create a bigger and better marketplace, at best.
From a defensive perspective, Walmart’s greatest advantage over Amazon is in the grocery space, where it is the leader owning about a 25 percent share of the roughly $700 billion market (Amazon at 1.1 percent and Whole Foods, 1.7 percent). And if Walmart won the Whole Foods acquisition, it would slow Amazon’s deliberate march to become a major player in the grocery sector, a goal that CEO Jeff Bezos has committed to, along with apparel.
Essentially, Amazon would be set back to their current testing mode Amazon’s most recent test model is Amazon Go, a cashier-less and associate-less, digitally driven, self-shopping grocery store that is still being tweaked. Not nearly ready for prime time rollout, the “Go” concept could end in “Gone.” AmazonFresh grocery delivery service is still being perfected. Their acquisition of about 460 Whole Food locations could gain greater traction making the “last mile” even shorter. In addition to shopping, these stores would provide distribution and pick-up points as well as test platforms for technology and delivery system innovations.
In my opinion, Amazon needs this acquisition. In an over-stored, slow-growing grocery sector, being piled on by more and more competitors including European giants Lidl and rapidly growing Aldi (and a sector in which a mere 3 percent is sold online), Amazon needs to establish a national physical presence to be a player in the space. And since Bezos’ philosophy from day one has been to “get big fast,” building out a national fleet of food stores would take too long. Worse, while doing so, Walmart, Target and the other major grocers will have integrated and perfected their digital and physical capabilities, thereby neutralizing one of Amazon’s competitive advantages.
Walmart, with its 25 percent share dominance of the total grocery market, and now combined with Jet.com and its e-commerce geniuses, is racing forward on jet fuel (pun intended), and will just keep pushing Amazon further behind if Bezos can’t acquire his way to scale. If Amazon has to build their own stores, by the time they get to whatever scale size they need to compete, they will be a day late and a dollar short.
Opportunity Knocks
So Doug, cut Bezos off at the pass and consider the following synergies for a Walmart acquisition (I’m assuming you have figured this out, but just in case…)
- The Whole Foods brand has a younger more upscale consumer following, which fits the same consumer profile that the Jet.com acquisition brought to Walmart. And it’s obvious Walmart plans to continue the strategy of pursuing younger, digitally savvy customers with their recent acquisition of Bonobos which will operate alongside MooseJaw, ModCloth, ShoeBuy and Hayneedle, under the direction of Jet.com’s Marc Lore. Marc would also be the best architect for “digitizing” the Whole Foods model.
- Whole Foods has been struggling for the last couple of years due to competitive pricing pressures from the onslaught of new competitors as well as traditional grocers pivoting their assortments to fresh, localized, natural organic products and prepared foods. Walmart, with its vast number of distribution facilities and superior logistical and supply chain capabilities would be able to considerably reduce the Whole Foods cost structure. Furthermore, Whole Foods would benefit from Walmart’s huge buying power to get the lowest possible vendor prices. Both of these significant efficiency measures would provide Whole Foods competitive and profitable pricing power as well as providing more value for consumers.
- And, by the way, the Aldi chain has been in the U.S. since the 1970s, and is arguably the fastest growing grocer due to its incredibly low prices. This also highlights the importance of getting Whole Foods pricing structure down quickly, which Walmart can accomplish more effectively than Amazon (well, there is that “Amazon doesn’t need to make a profit” thing).
- Another strategic opportunity for Walmart is that overnight, a Whole Foods acquisition gives Walmart 460 new (not overlapping) footprints in more upscale locations. The acquisition would also provide new pickup and delivery points for any of Walmart’s products ordered online. Quid pro quo, Walmart’s fleet of close to 5000 U.S. stores becomes pickup and distribution locations for Whole Foods online orders.
- In select Walmart locations, Whole Foods could occupy adjacent space or as “shop-in-shops,” thus, providing quick, non-capital intensive national growth.
The Walmart Advantage
Walmart acquired Jet.com and Marc Lore to gain a new, younger and more affluent consumer market. They also bought Lore’s knowledge and credible skills in all things digital, including the e-commerce model that Jeff Bezos is eating the world with.
So Walmart now has the perfect combination of its own expertise in all things “physical” retailing, including all things grocery (as the largest grocer in the world), with Jet.com catapulting Walmart into the digital world.
On the other hand, Amazon is the unquestioned expert in all things digital, but they are still dabbling and testing all things grocery. And apparently the dabbling is going too slowly for Bezos. He wants grocery expertise and a path to dominance, now. He wants and needs Whole Foods.
End Note
Doug, don’t let him get it. If you do, you will be inviting a fox into the hen house. You have the clout and many solid reasons to steal Whole Foods out of the clutches of Amazon.
Go for it.
