Quincy News

Grocers eye competition from Amazon, wait to see what develops

By Herald-Whig
Posted: Jun. 27, 2017 10:05 am

QUINCY -- Amazon's plan to purchase Whole Foods Market for $13.7 billion is sending shock waves through the grocery industry, but nobody knows what will happen next.

Amazon CEO Jeff Bezos already has radically altered the way Americans shop.

And Whole Foods chief John Mackey had been making some headway in transforming the grocery industry through creation of a natural foods chain. However, his company was criticized for high prices, old technology and unattractive store design.

Mackey held a town hall meeting with Whole Foods employees last week, but said he couldn't discuss details of what Amazon might bring to the table.

"I think you're gonna see Whole Foods Market evolve in leaps and bounds," Mackey said.

Grocers in Quincy are watching, but don't know what impact there might be in the industry.

"Back 20 years ago, anything that happened in this industry on the East Coast or West Coast took seven years to get to the Midwest. In the digital age, it might only take seven months," said Gerry Kettler, director of consumer affairs at Niemann Foods Inc.

But Kettler believes Niemann Foods, which is celebrating 100 years in business, will be important to its customers for years to come.

"It's very hard to replace the personal touch you can get at the corner grocery store. At the core, people want to pick out the foods they'll feed their families," Kettler said.

Tad Gallagher, store director for the Harrison Hy-Vee, said it seems as if every major company is looking for another company with which to partner.

"Moves like that don't surprise me. I'm just waiting to see what changes they make," Gallagher said.

Technology will be at the heart of changes that could make Amazon a big player in the grocery sector. Amazon has made a habit of collecting information on customers. Industry experts believe there's some crossover in higher-income customers who patronize Whole Foods as well as Amazon Prime.

That doesn't mean other grocers are starting from scratch. Hy-Vee and Niemann Foods both have loyalty programs. They have mobile apps that can lead shoppers to in-store specials and they offer options for people who seek to have items delivered.

"We try to stay at the forefront with technology. We think our Aisles Online is second to none," Gallagher said of Hy-Vee's program that lets customers place online orders to be picked up at a store location or to be delivered to the home.

Hy-Vee operates stores in eight Midwestern states, so it has kept up with trends. Its loyalty card program in Quincy can earn customers discounts on gasoline at stores in this region.

Niemann Foods also has been using loyalty cards for decades and offers coupons that are tailored for each customer.

Whole Foods has 440 U.S. stores and many of its own brands. So if the Amazon deal goes through it will instantly acquire a stable of its own grocery staples such as pizza sauce and peanut butter. And Amazon would probably give those items favored placement in its search results. So anybody using an online device to search for groceries using an Amazon system would see Whole Foods brands first. It would take extra effort to dig down to other companies' branded products.

Amazon already has shown an interest in boosting its own brands. After introducing its "AmazonBasics" batteries, for instance, the site made them the top result for "batteries" searches over Duracell and Energizer, notes James Thomson, a former Amazon employee who was in charge of bringing new sellers to the site.

Doing so with Whole Foods brands as well would help lower costs -- and possibly diminish Amazon's reliance on packaged food makers such as Kraft Heinz and PepsiCo.

"You start by controlling the distribution, now you're in a position that you can control who's invited to the party and who's not," said Thomson, now a partner at consulting firm Buy Box Experts.

Questions remain about whether Whole Foods is ripe for the type of growth that Amazon might bring. Whole Foods has seen its sales decline, in part because organic foods are more widely available at mainstream grocers. Two of the top five retailers in the United States, Walmart and Kroger, have gradually introduced more items for health-conscious customers. And their prices are lower than comparable items at Whole Foods.

Even with all the uncertainty, the financial markets already have cast their bets on a profitable marriage of Amazon and Whole Foods. On the day Amazon made its bid, its stock price rose jumped, raising the company's value by $6.5 billion. Other food sellers such as Costco, Kroger and Supervalu saw their stock prices dip.

The Associated Press provided information for this story.

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