Why Amazon Will Probably Fail With Whole Foods
Amazon has already damaged Whole Foods hard-won reputation for the highest quality at a (justifiably) high price.
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After I posted yesterday's column about how Amazon's acquisition of Whole Foods could be bad news for small businesses in the food industry, my editor pointed out that there's no guarantee that the acquisition will prove successful. After all, the business models and market positioning of the two organizations are almost exact opposites.
Consider: Whole Foods became successful offering high quality at a correspondingly high price. (That's why it was nicknamed "Whole Paycheck.") The Whole Food brand promise is that you're getting the best of the best, which is worth the extra cost.
By contrast, Amazon originally became successful offering a standardized commodity (books) at a consistently low price. Since opening its platform to other products and all-and-sundry vendors, Amazon's success comes now from offering the lowest price possible with no guarantee of quality.
While Whole Foods is all about an upscale experience, Amazon is about trolling for bargains at your own risk. This market positioning is reflected in the corporate cultures of both organizations, and they are not compatible. And that bodes ill for the merger.
Whenever a large company acquires and absorbs a smaller company, the large company inevitably forces its culture into the acquired company. (Example: Time Warner forcing traditional media culture down America Online's web-centric throat.)
While there are some companies (Cisco used to be quite good at this) that manage to build walls that prevent the "normalization" of acquired cultures, in most cases the destruction and replacement of the weaker culture takes place in a matter of months.
Indeed, in the brief time that Amazon has owned Whole Foods, they've already publicized some price-dropping, no doubt thinking (as would any Amazonian) that a lower price means more business.
But that's not the Whole Foods brand promise. Current customers of Whole Foods are likely to assume that lower prices means lower quality. And that will happen very quickly indeed if if Amazon's price-is-everything culture drives Whole Foods to start carrying substandard products.
There are two ways this can play out.
- Amazon succeeds in convincing Whole Foods customers that paying the lowest prices is important. In this case, Amazon would be converting upscale, quality-minded consumers into downscale, price-minded consumers. That's incredibly stupid, because the most valuable brands are those that can command high prices and not get caught up in price wars.
- Amazon fails to convince Whole Foods customers that paying the lowest price is important. In this case, the upscale customers will stop shopping at Whole Foods and start shopping somewhere that has a "high quality at a high price" market positioning similar to the market positioning that Amazon is in the process of trashing.
So, while the Harvard Business Review may see Amazon's acquisition of Whole Foods as a way for Amazon to learn about the grocery business; Amazon could end up learning--the hard way--about basic market positioning.