Reference no: EM132948553

Case Study:

You want to eat healthy. You want to eat organic, but you don't want to spend your entire paycheck on groceries. How is it possible to do both? Try Amazon. They are changing the grocery game, again. 

Amazon announced on June 16, 2017 their intention to acquire Whole Foods Market, the organic and natural foods supermarket chain, for $13.7 billion. The deal values Whole Foods at $42 a share. Amazon said Whole Foods will continue to operate under its name, as a separate unit of the company, with CEO John Mackey in the lead, and with headquarters based in Austin, Texas. 

"Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy," said Amazon CEO Jeff Bezos. The takeover is slated to be completed in the second half of the year. 

Whole Foods was founded in 1978 and is credited with making healthy and organic food become mainstream. The company now has 450+ stores (most in the U.S. but some in Canada and the U.K.) and around 87,000 employees. 

"Amazon is placing its bet on the future of the food industry," says Errol Schweizer, a former Whole Foods executive who is now an industry adviser, "and they see Whole Foods as the leadership." 

Amazon has been slowly entering the grocery market over the past few years, prior to their Whole Foods acquisition. Amazon currently offers its own grocery delivery service, AmazonFresh, and has also been experimenting with online grocery ordering where customers order groceries online and pick them up at a physical location. This deal expands Amazon's ownership of traditional brick-and-mortar stores. 

"Amazon clearly wants to be in grocery, clearly believes a physical presence gives them an advantage," said Michael Pachter, an analyst at Wedbush Securities Inc. "I assume the physical presence gives them the ability to distribute other products more locally. So theoretically you could get 5-minute delivery." 

The Whole Food store locations offer Amazon a network of distribution centers for which they could send produce, the most challenging part of grocery delivery. Spoilage of fruits and vegetables have not made it feasible in the past. 

In addition to physical locations, Amazon will also acquire the asset of Whole Foods' 365 house brand. 365 is a favorite organic-food brand among customers, and has been virtually unavailable online so far. 

"The opportunity to use the 365 brand as a mainstay of their online offering is really profound," says Bernstein analyst Alexia Howard. "It puts a huge amount of pressure on branded food sales." 

The deal sent waves through the grocery industry. Wal-Mart Inc. shares fell as much as 7.1%, while Kroger Co. fell 17%. When Amazon entered into the book business, prices fell across the industry as publishers and authors had to cut their costs along the book supply chain to remain competitive. Grocery stores are anxious to see if Amazon will have the same effect on their industry. 

"I would be terrified if I were a consumer packaged-goods company right now," says Benzi Ronen, CEO and founder of food hub management software startup Farmigo. 

Case Study Questions

• Explain the cultural shift that has led to Whole Foods popularity - In other words, what are the cultural and or environmental factors that has made Whole Foods a popular food chain. 
• Provide a detailed description of two of Whole Foods' target markets (include key demographic, Psychographic, and lifestyle) descriptions. In other words, provided a detailed description of a person that meets these combined target market factors. For example, describe what the majority of Chick-Fil-A customers that are in the age range of 30-40 years old look like i.e. ethnicity, the jobs they have, and what their lifestyle would be.   
• Provide and describe one or two marketing channels to best contact, communicate, or market to the target market described above. Give specific examples of why these channels are used and why the target market uses these channels.