When Whole Foods Market began the process of merging with Amazon in 2017, the company knew changes were coming — modified internal procedures, different expectations from customers and learning the online ecosystem of its new parent company.
Almost two years later, a look at the Whole Foods’ growth pattern shows just how disruptive the adjustment period was for the Austin-based grocery chain, which operates New Hampshire stores in Bedford and Nashua.
After Whole Foods came under Amazon’s ownership in 2017 in a $13.7 billion buyout, it effectively brought a halt to its expansion efforts, according to an American-Statesman analysis of the grocer’s public data.
The ownership change created a break in what had for years been a steady stream of investment in new stores by Whole Foods. But as both companies have gained their footing in the new partnership, Amazon has begun to again accelerate store expansions while continuing to implement new systems at Whole Foods locations.
“Remember, Whole Foods was a mess” before the buyout, said Phil Lempert, lead analyst at industry market research firm SupermarketGuru. “Amazon had to spend a lot of time fixing Whole Foods before rolling out more Whole Foods.”
In the three years prior to being purchased by Amazon, the grocery chain was opening about 30 stores per year, according to data on the Whole Foods website. In 2017, as the merger unfolded, that number dropped to five new stores before climbing to about 25 new stores in 2018.
Executives for Amazon and Whole Foods declined to comment.
It’s not unusual for companies to put expansion plans or new hires on hold while they are in transition, said Sucharita Kodali, an e-commerce analyst with Forrester Research.
At mature companies like Amazon, there are typically teams formed to plan out integration, with all non-essential operations put on hold.
In addition, Whole Foods had been facing slumping sales and pressure from investors for months prior to its buyout.
Now, Kodali said, it’s clear Amazon focused first on assimilating Whole Foods into its culture before ramping up investment in new stores. In the past two years, Amazon has worked to put its imprint at Whole Foods’ roughly 500 stores.
The e-commerce giant has made its Amazon Prime rewards system the centerpiece of its price reductions at Whole Foods, and established grocery delivery through Prime Now. Two-hour delivery is now available in more than 60 cities, while grocery pickup in as little as 30 minutes is available in more than 20 cities.
Last year, Whole Foods also centralized its regional buying procedures into its headquarters on North Lamar Boulevard, creating a more streamlined system that caters less to startup businesses but that has also made its operations more efficient. Amazon has also been reported to have addressed issues with inventory structure at Whole Foods and other internal systems.
“This is a smart data company,” Lempert said of Amazon. “They’re giving us a glimpse of what’s going on behind the scenes.”
As it explores expansion options, Amazon is expected to tweak store structures at some of the planned new sites. A recent report by the Wall Street Journal said Amazon could build some of its new Whole Foods stores at about 45,000 square feet, a little larger than what stores have typically averaged.
Analysts say the bigger stores could make space for more fresh food choices, indoor restaurants and added space for delivery and online orders.
Whole Foods has had to adapt to its new owner while facing increased competition from other grocery chains. Companies such as H-E-B and Kroger have expanded their food selection and started their own delivery options.
Recently, Whole Foods also said it would stop opening 365-brand stores, a concept the chain rolled out in 2016 and promoted as a smaller, cheaper option.
All of the changes, analysts say, have led to a more efficient grocery company.
Whole Foods is seeing better sales and is trying to address requests by employees for better benefits and working conditions, The Wall Street Journal reported.
Amazon last October raised the minimum wage for all its workers, including at Whole Foods, to $15 per hour.
Amazon, however, will have to continue to figure out how to improve an online grocery industry that has historically been low-margin, Forrester’s Kodali said.
A recent online survey by Forrester of 4,770 adults in the United States found that about 95 percent of people still primarily buy groceries at the store, with only 9 percent of respondents saying they shopped at Whole Foods stores.
“The online grocery space,” Kodali said, “is still very much a work in progress.”