By Laura Stevens and Heather Haddon
Amazon.com Inc.'s planned $13.7 billion acquisition of Whole
Foods Market Inc. unites two maverick businessmen who will now have
to blend very distinct approaches to make the deal a success.
The acquisition, if it goes through, will require Amazon Chief
Executive Jeff Bezos and Whole Foods CEO John Mackey to work
together to combine Amazon's technology and customer know-how with
Whole Foods' brick-and-mortar grocery expertise.
Messrs. Bezos and Mackey share some traits. The two men -- who
only got to know each other a few weeks ago, people familiar with
the matter say -- are iconoclasts whose outsize personalities
shaped their companies. They pioneered new strategies in their
industries -- Mr. Bezos by shifting retail online, Mr. Mackey by
popularizing health food -- and they are intensely competitive, say
people who have worked with them.
But the two founders also have sharply different strategies and
missions that could prove tough to marry. Mr. Mackey's Whole Foods,
whose sales totaled $15.7 billion last year, has catered to
wealthier customers with boutique brands and hands-on customer
service.
Mr. Bezos has appealed to the masses with low prices enabled in
part by centralization and automation. And Amazon, with $136
billion in revenue last year, has achieved far larger success
financially -- putting Mr. Bezos firmly in charge.
"On both sides, they will have challenges with accepting that
they can learn from each other, and letting go of the 'that's how
we've always done it' mentality," says Forrester Research analyst
Brendan Witcher, a former retail executive who now researches
e-commerce and consumer behavior.
Amazon has experimented with physical retail for years, but the
Whole Foods deal happened quickly. The companies signed a
confidentiality agreement on April 27, according to people familiar
with the matter and a federal filing -- amid a board shakeup at
Whole Foods, and roughly two weeks after Jana Partners LLC
disclosed a stake in the grocery and called for its sale.
Amazon and Whole Foods signed a second confidentiality agreement
on May 7, the same weekend Whole Foods' board offered Jana two
seats but rejected taking on a partner from the New York hedge
fund. After the board changed, the deal coalesced quickly. Mr.
Bezos was personally engaged and Mr. Mackey traveled to Seattle for
negotiations, the people said.
Executives at Amazon and Whole Foods found they shared a
willingness to let employees take risks and an emphasis on customer
experience, according to people familiar with the matter.
The companies have said little about how they plan to integrate,
and declined to make their CEOs available for interviews. But at
least some benefits of the combination seem clear.
Mr. Bezos gains more than 460 stores across the U.S., a network
that could let Amazon sell its private-label brands and devices in
stores, expand its distribution network, and bolster its Prime Now
and Fresh delivery businesses.
Whole Foods gets access to Amazon's data and technology, and the
combined buying power of Amazon Fresh and Whole Foods could win
better prices from grocery suppliers. Also, Mr. Mackey's new boss
has been tolerant of thin profit margins, a welcome relief after
activist investor pressure over profit and other issues. Amazon has
said Mr. Mackey will remain CEO of Whole Foods.
Still, Mr. Bezos's team is likely to scrutinize Whole Foods'
business practices seeking opportunities for change, former Amazon
employees say. To better compete with rivals including Wal-Mart
Stores Inc., for example, Amazon likely will push for lower prices,
new technology, and more uniform stores to save costs, they
say.
Mr. Mackey has balked at activist investors for criticizing
Whole Foods as too slow to innovate, despite the company's recent
efforts to do so.
Mr. Mackey, a 63-year-old Texan who studied philosophy and
religion in college but didn't graduate, built Whole Foods with his
partners into a national brand from one natural-food store in the
basement of an Austin, Texas, house. They bought up local
health-food chains, using capital from investors to open big stores
in a sector long dominated by mom-and-pop shops. Whole Foods
patched together 11 regions that were given autonomy to develop
their own store concepts, signage and other flourishes.
"They are free to try new things," said Mr. Mackey in a recent
interview. Employees study ideas inside and outside the company and
don't "have to ask permission from Austin," where Whole Foods is
based.
Mr. Mackey is more focused on the big picture than immersed in
the details of everyday operations, former executives said. A
strict vegan, he likes to cook dinners showcasing good eating to
bring parts of the company together, said people who have
attended.
Some say that the close-knit culture has drawbacks. "It's been a
very paternalistic culture where it's a job for life. If someone
doesn't deliver, you don't necessarily suffer the consequences,"
said Burt Flickinger, a grocery consultant.
At Amazon, performance is prized and, as with other tech
companies, employees come and go more frequently, former employees
say.
Mr. Bezos, 53, earned a degree from Princeton University in
electrical engineering and computer science and worked on Wall
Street before founding Amazon in his garage in 1994. He "has this
unique ability to stay focused on a long-term vision, while also
staying very focused on the details," says Joseph Thompson, a
former general manager of retail at Amazon and current vice
president of marketing and growth at BuildDirect, a
home-improvement online marketplace.
Despite Amazon's size, Mr. Bezos tries to maintain a startup
culture. Teams are typically kept small (defined by the ability to
be fed with two pizzas) and there is a strict process for
developing new ideas and inventing devices, which includes writing
six-page papers for explanation, according to former employees.
When former Amazon employee Eric Heller met with Mr. Bezos and
his team more than a decade ago to push for requiring customers to
enter credit-card security codes while checking out, the CEO dug in
on the details. The requirement would save costs by reducing the
likelihood of fraud, but Mr. Bezos worried it would make
transactions more cumbersome, Mr. Heller recalls.
"Until my mother knows what a [card verification value] is,
we're not putting it on the transaction page," Mr. Bezos said,
according to Mr. Heller, who has since founded consultancy
Marketplace Ignition.
Some former employees and industry observers said it would take
time for the companies and founders to mesh.
"They will be blended. It won't happen in three months but in
two or three years it will," said Tom Furphy, former head of
Amazon's consumables and Fresh divisions, and now CEO of Consumer
Equity Partners, a venture-capital fund.
--David Benoit contributed to this article.
Write to Laura Stevens at laura.stevens@wsj.com and Heather
Haddon at heather.haddon@wsj.com
(END) Dow Jones Newswires
June 19, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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