Amazon’s surprise acquisition of Whole Foods has pundits furiously examining tea leaves to determine what this could say about the online retailer’s future intentions for the grocery business. But it’s most helpful to consider potential strategy directions by looking at what’s baked into Amazon’s core: standardization.
Jeff Bezos is not a book guy. With no background in publishing or bookselling, he founded Amazon as a bookstore on the web because he is, at heart, an analyst. Analysts look for patterns, and the book business comes with a pattern that has proven successful since the invention of the ISBN. The early ISBN was a 10-digit identifier that conformed to the pattern language-publisher-identifier-checksum. Publisher warehouses collected information about their books, assigned that information an ISBN, and sent the metadata via electronic data interchange to the warehouses of distributors.
By contracting with distributors for this information, Amazon was able to get off the ground pretty quickly, and not too long after the online retailer’s launch, using the ISBN pattern as a model, Amazon created its own identifier, ASIN (Amazon Standard Identification Number), helping Bezos to expand into other industries—beginning with music and videos, and then clothing, shoes, and everything else, including digital and streaming media and cloud computing. “Everything else,” however, has not included perishable goods until fairly recently.
In many respects, groceries are the last frontier for standardized retailing. Produce, for example, is not easily standardized, and the difference between a good head of lettuce and a bad one is pretty extreme. (Bad produce can be bad in so many ways.) But even grocery stores are becoming more and more digitized. The quality of the products may vary, but they’re all scannable at the register—even fruits and vegetables come with global standard PLU codes that identify them to computers. A golden delicious apple is 3005, no matter what country you’re in. ISBNs, but for clementines.
Whole Foods itself has done a great deal with grocery standards—and it’s had to pay attention to them. What started as a single group of small markets rapidly expanded with a series of acquisitions in the 1990s: Bread & Circus in New England, Fresh Fields in the Midwest, and a remarkable array of other “health food” stores nationwide. That kind of cross-country expansion means that internal systems have to cooperate, that back-office and distribution efficiencies have to be created, with every system brought under its wing.
Whole Foods was also the first supermarket to be certified organic—which meant that their farm-to-store supply chain has been regulated and standardized over the years. Grocery selling is enormously inefficient, what with expiration and sell-by dates of perishable items; organic grocery selling is an even further challenge because of the invitation for even more regulation and changing standards.
But, in contrast with Amazon’s reputation for widespread accessibility, the company will not open a store in just any area—the residents of the area must, in the main, be college educated and above a certain income level. This is why we see stores in Pasadena, Calif.; Manhattan; and Montclair, N.J.; but none on Staten Island: despite its population of nearly 500,000, it doesn’t have the requisite income and education levels. Why would “the everything store” be interested in acquiring a chain that is, almost by definition, exclusionary?
The answer may well lie in Whole Foods’s newest venture—its new store concept 365. Positioned as Whole Foods’ “affordable” option, 365 is a born-digital enterprise—in other words, an initiative that began in June 2015, built on experience garnered over Whole Foods’ 27-year history. With iPads attached to scanners that tell consumers information about the products they’re purchasing, Whole Foods is also gathering information about products that consumers are considering or curious about. There are only a few 365 stores now, but Whole Foods has extensive plans to expand the chain—just as they did with the Whole Foods Markets themselves.
Overall, Whole Foods offers the one thing that Amazon prizes over everything else: consumer data. As Amazon embraces bricks-and-mortar selling, as we’re seeing with its bookstores in cities like Seattle and New York, having banks of consumer data about grocery purchases is well worth the $13 billion price Amazon paid for the chain.
What I really hope comes out of this acquisition is wider distribution of healthy, affordable food to underserved areas—those places so heavily reliant on Walmart, where residents have to drive for food purchases (unlike those of us in cities supported by FreshDirect and Peapod). Whole Foods has always carried a line of products that was reasonably priced while adhering to their organic standards. With Amazon’s acquisition, they now have the market capitalization, the adherence to rigorous food supply chain standards, and the computing power to make that work.
Laura Dawson, CEO of Numerical Gurus, is a book supply chain consultant. She also facilitates Metadata Boot Camp, a webinar series tackling metadata issues in publishing.