Amazon, Whole Foods, and the Quest to Dethrone Walmart
On June 16, 2017, the E-Commerce company Amazon and the upscale grocery chain Whole Foods agreed to a deal in which Amazon would acquire Whole Foods for over thirteen billion dollars. This was a bold move by Amazon, and it is rapidly increasing each company’s competitive edge. One on side of the acquisition, Whole Foods had reached a low point in its lifespan. Its stock prices were very low and revenue growth had been falling every year since 2012. Due to all of this, Whole Foods’ investors were urging it to sell itself to a larger, competitive grocery chain. In being bought by Amazon, Whole Foods gains an edge a competitive edge due to the influx of Amazon Prime members. The yearly membership fee Amazon Prime members pay helps cover the costs of some goods, allowing Whole Foods to reduce some of their prices and attract more business. According to an article posted by CNBC on September 12th, 2017, business has already seen a dramatic increase: a spike in foot traffic by over 25%.
On the other side of the deal, Amazon was seeking to expand itself into the areas of food and urban real estate. Amazon has always been competing with businesses like Walmart in the areas such as online shopping and was looking into selling food by way of a delivery service. They look to market towards the newer generation of lazy consumers who may want goods to be delivered rather than physically bought at a store. Most goods seemed to sell well for Amazon, but the food related items sold on Amazonfresh didn’t seem to have the same success rate. Through this acquisition, Amazon can partially use Whole Foods as more warehouse space across the country and is also able to continue expanding in the direction of food delivery services. It is now done in a more subtle way, through the use of a home delivery option at Whole foods.
Through this acquisition, both parties, and the consumer, benefit. Amazon Prime members receive rewards for shopping at Whole Foods and have the option to have goods delivered home, which benefits both Amazon and Whole Foods. Whole Foods receives higher business, Amazon is able to further promote its Prime membership, and consumers get better deals all around: A win-win-win situation. Alongside all of this, Whole Foods and Amazon team up to take down mutual competitors such as Walmart. Both of these sets of relationships (The relationship between Consumers, Amazon, and Whole Foods and the relationship between Amazon, Whole Foods and competitors like Walmart) are prime examples of the Structural Balance Property. For the Structural Balance Property to hold true, all relationships between a set of three nodes/parties must be positive or there must be exactly one positive relationship and two negative relationships. In the first case, the consumers, and both businesses have a positive relationship with each other. In the second case, Amazon and Whole foods are both in a mutually beneficial relationship while each having a negative relationship with its mutual competitor Walmart. As time goes on both sets of Structurally Balanced relationships will continue to benefit Amazon and Whole Foods, and they may one day completely dethrone Walmart from its position of power in the industry.
Link referenced:
https://www.theatlantic.com/business/archive/2017/06/why-amazon-bought-whole-foods/530652/
https://www.cnbc.com/2017/09/12/whole-foods-foot-traffic-surges-over-25-percent-post-amazon-discounts.html