Why Amazon isn't afraid of a Whole Foods flop
Amazon (AMZN) announced Friday it would buy Whole Foods (WFM) for $13.7 billion.
And while this news sent shares of potential grocery competitors lower and saw pundits and analysts proclaim this the beginning of a new era in American shopping, it’s also possible this deal might not work.
Which would probably be fine by Amazon.
Recall that it was just a short few years ago that Amazon made a big entry into the smartphone space with its Amazon Fire phone. And it was an even shorter one year later that it bailed on its project.
“We want to be a large company that’s also an invention machine,” wrote Amazon CEO Jeff Bezos in his 2015 letter to shareholders.
“We want to combine the extraordinary customer-serving capabilities that are enabled by size with the speed of movement, nimbleness, and risk-acceptance mentality normally associated with entrepreneurial start-ups. Can we do it? I’m optimistic.”
Bloomberg reported that it took “a lot of convincing” for Bezos to be comfortable with the deal, which was far bigger than any acquisition Amazon has made in its history.
“Most decisions should probably be made with somewhere around 70% of the information you wish you had,” Bezos wrote in this year’s letter to Amazon shareholders. Ultimately, then, Bezos took something like his own advice.
“If you wait for 90%, in most cases, you’re probably being slow,” Bezos wrote. “Plus, either way, you need to be good at quickly recognizing and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.”
In other words, act boldly and decisively. Acquiring a grocery store chain for almost $14 billion is, most would agree, a bold and decisive move.
But that it was an acquisition large in size need not mean it is one Amazon will be committed to if it does not further the company’s goal to be “earth’s most customer centric company.”
Because while so much of the commentary around the deal has focused on what this deal might mean for consumers, Stratechery’s Ben Thompson argued on Monday that Whole Foods did not get snapped up by Amazon as a selling platform, but as a customer of Amazon’s services.
In this sense, then, Amazon’s ability to leverage its logistical expertise to service Whole Foods better will be the marker of the deal’s success, not an increase in same-store sales at Whole Foods locations.
And with Amazon’s investor base clearly having been trained to give Bezos and his management team the benefit of the strategic doubt, expect investors to be willing to look past a continuation of discouraging sales trends at Whole Foods.
It may still, however, turn out that Amazon, which has tried to make a splash in the fresh food space with its AmazonFresh business, cannot leverage Whole Foods’ resources as an answer to its efforts to break into food. And if this is the case, Amazon will probably be fine with it.
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Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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