By Laura Stevens
Amazon.com Inc.'s acquisition of Whole Foods Market Inc. could
mean that consumers see Echo and Kindle devices for sale in the
grocery aisle and 365 organic foods in Amazon's green delivery
totes.
But beyond simple cross-selling opportunities, a big question in
the $13.7 billion deal is: How deeply will the online retail giant
integrate its new brick-and-mortar subsidiary?
At a town hall meeting at Whole Foods headquarters in Austin,
Texas, on June 16, the day Amazon announced its biggest-ever
acquisition, executives implied a light touch.
"We have enormous admiration and respect" for the way Whole
Foods has built its business, Jeff Wilke, Amazon's CEO of worldwide
consumer, said at the time. "And the worst thing that we could do
would be to ask you to change it in some discontinuous way."
Still, Whole Foods Chief Executive John Mackey added, "Things
are gonna change. There's just no question about that."
Amazon's options with Whole Foods range from leaving the grocer
essentially as a standalone to giving it an overhaul. While the
transaction is expected to close this year, Amazon is typically
deliberate when it comes to establishing an integration plan, and
it could take several months for it to become clear, according to
former Amazon employees and people familiar with its acquisition
strategy.
So far, Amazon has shed little light on its plans. The deal
materialized in approximately six weeks, leaving executives at both
companies little time to craft a concrete integration plan, other
than to keep Mr. Mackey at Whole Foods' helm. It is likely to try
to streamline operations, reduce prices and introduce some Prime
membership benefits, the former employees said.
Both Amazon and Whole Foods declined to comment.
The deal poses risks for Amazon.
Change Whole Foods too little, and the company continues to
struggle with inefficiencies. Too much change, and it bleeds loyal
customers and staff, potentially prolonging a same-store sales
decline.
A look back at Amazon's track record shows it is largely
hands-off with its acquisitions, except in some cases where it has
bought a company for scale or to remove a rival.
Their $1.2 billion acquisition of Zappos in 2009 largely left
the online shoe seller autonomous, in part to preserve Zappos'
relationship with brands and customers. The two companies
established operating guidelines and limited integration to
"must-haves."
"We have our own separate culture and way of doing business,"
said CEO Tony Hsieh, who has been leading Zappos since before the
acquisition. "We essentially treat Amazon as the equivalent of our
board of directors."
Still, former Amazon executives say some adjustments were made
on the back end to increase supply chain efficiency and to reduce
costs -- something likely to happen at Whole Foods, too.
Twitch Interactive Inc., which broadcasts people playing
videogames, has kept its open floor plan and free cafeteria since
Amazon bought the San Francisco-based startup for $970 million in
2014. While the video-streaming service still runs as a standalone,
the two companies have joined forces to grow Amazon's Prime
membership by creating Twitch Prime, a $10.99 monthly membership
that gives Twitch users the same benefits as Amazon Prime along
with discounts on games and other perks.
Amazon's Mr. Wilke has publicly touted the overlap in Amazon and
Whole Foods customers, and analysts and former executives expect
the company to try to fuel Prime membership growth through offering
special discounts and services.
Even so, there may be a culture clash.
Whole Foods gives its stores autonomy and has long rewarded
employee loyalty, something that may be a tough fit with Amazon's
desire for solutions that can apply across the board and a culture
that prizes performance over tenure, according to the former
employees and people who have worked with both companies.
In other high-profile cases, Amazon did fully integrate its
purchases.
In 2012, it acquired Kiva, which makes warehouse robots that can
tote shelves full of items to human workers, for $775 million.
Buying Kiva improved Amazon's operational efficiency and kept the
technology out of rivals' hands.
Amazon "saw it as a very strategic acquisition," said Jerome
Dubois, director of global sales at Kiva at the time. He stayed at
Amazon through mid-2015 and later became co-founder to robotics
company 6 River Systems, Inc.
"I don't think there was any way in the world that they were
going to let Kiva run as a standalone," he said.
In 2010, Amazon acquired Quidsi Inc., which owned diapers.com
and other websites, after a pricing war between the two online
retailers. Amazon paid roughly $550 million, buying some scale and
supply chain expertise, such as Quidsi's insights about how to more
profitably ship bulky items, such as formula and diapers, and
cracking the online subscription model.
The company started off as a standalone brand, too, but Amazon
quickly worked to join back-end operations and to pool some
inventory. The two faced some culture clashes as a result, and
Amazon more fully integrated Quidsi after its co-founders exited.
It recently shut down the unit, saying it was unprofitable.
Sarah E. Needleman,
Khadeeja Safdar
and
Heather Haddon
contributed to this article
Write to Laura Stevens at laura.stevens@wsj.com
(END) Dow Jones Newswires
August 10, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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