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Will Amazon change Whole Foods – or vice versa?

The business press has been analyzing Amazon’s surprise acquisition of Whole Foods with all the fervor of the mainstream press covering the latest international incident. Questions are coming fast and furious: Should Amazon be broken up? Can Amazon become Walmart faster than Walmart becomes Amazon? Will Amazon disrupt the grocery sector the way it’s disrupted the rest of the retail industry? Has the company solved the “last mile” problem of online retail? Does Jeff Bezos really desire world domination? To contribute to the conversation, we’ll stake out our small corner of Amazon talk around the potential for transforming customer loyalty. Our question: Will Amazon transform Whole Foods’ approach to customer loyalty – or is it Amazon itself that will need to change?
By Rick Ferguson
The question is more than academic. Grocery loyalty programs have been stuck in the two-tiered pricing model for decades now. While gocers such as Kroger have developed sophisticated data analytics capabilities to leverage program data for personalized offers, the essential value proposition – Pork tenderloin at $1.99 per pound with the card, $2.99 per pound without it – is still the same as it was 15 years ago. The loyalty value proposition in grocery is in dire need of reinvention – and with Amazon’s acquisition of Whole Foods linking Whole Foods customers with Prime membership, there’s no better time than the present.
Interestingly, Whole Foods recently inked a deal with retail analytics firm Dunnhumby – the UK-based company that pioneered grocery analytics and until a recent split was partly owned by Kroger in the US – to begin to leverage loyalty data to market to its own customers. That was a good start – but, as a Market Watch report highlights, the Amazon acquisition opens up a brave new world of opportunity for Whole Foods. Money quote:
“Whole Foods could take a page out of Amazon’s book and boost its loyalty program, which now is basically nonexistent… [there] are many possible ways Amazon and Whole Foods could work together to improve their loyalty programs. Once Amazon owns Whole Foods, it could introduce new perks at the grocer for Prime members, such as an express checkout lane, or Prime-member exclusive sales… Amazon has also developed high-tech ways of creating loyal customers, from its voice-activated personal assistant Alexa that allows customers to place orders, to a new product announced this month called the ‘Dash Wand’ that also allows voice-ordering. This deal could mean Whole Foods products become available through those tools.”
That’s just a start. With Whole Foods’ retail locations occupying center-stage in over 400 affluent neighborhoods throughout the US, the retailer could leverage Amazon’s Prime penetration into those neighborhoods to position itself as the destination location for Prime members. What’s mostly been missing from grocery loyalty value propositions is any substantial commitment to soft benefits: those exclusive events and insider access opportunities that turn transactional loyalists into emotional ones.
With Whole Foods customers already demonstrating loyalty to the grocer beyond price, the opportunities are boundless. We might imagine top-tier Prime members journeying to Whole Foods for exclusive product sales, cooking demonstrations, and wine tastings; while they’re at Whole Foods, they can pick up their recent orders from Amazon.com. On the flip side, Prime customers might enjoy priority delivery from their local Whole Foods – just tell Alexa what you need, or hit the button on your Dash wand, and it’ll be at your door in two hours.
And then there’s the data: imagine the insight that Amazon can derive about its Prime members once they start checking into Whole Foods, allowing the company to track its grocery purchases, and then waiting for the personalized offers and product recommendations from Amazon to flow into their Amazon.com experience. Given Amazon’s demonstrable expertise in online product recommendations, the mind boggles.
Is it possible for Amazon to make a misstep? Sure. The company has only recently dipped a toe into the real world – and building shopper loyalty in the real world is dramatically more complex than building loyalty online. Online, it’s possible to control every facet of the shopper experience, down to the individual pixel level. In the real world, there’s a myriad of shopper interactions over which Amazon will have only limited control. Their answer may be to transform Whole Foods into a tech-first experience, as they’re attempting to do with their Amazon Go convenience store concept, and which Whole Foods itself is attempting with its “365 by Whole Foods” concept stores. Money quote from Forbes:
“While it’s still unclear how Amazon will re-organize Whole Foods, a video released on Amazon Go stores last year may provide a good hint—there will be no cashiers. They will all be replaced by technology, which monitors customers entering the store, records what they buy, and ensures that they are charged the appropriate amount. Though Amazon officials are denying the company has such plans for Whole Foods. ‘Amazon has no plans to use the technology it developed for Amazon Go to automate the jobs of cashiers at Whole Foods,’ said, a spokesman for Amazon. ‘No job reductions are planned as a result of the deal,’ he said.”
We certainly hope the Amazon spokesperson is on the level. Never mind the jobs lost, which will have a very real impact on the communities in which Whole Foods operates. Automating the retail experience – as other companies from Walmart to Target to McDonald’s plan to do – is the quickest way to turn retail into nothing more than an impersonal, transactional experience. True emotional loyalty will always require human interaction. If Amazon is serious about conquering the grocery business, it will better serve its customers by leveraging its technology expertise to empower Whole Foods employees to provide a differentiated customer experience – one supplemented by at-home-ordering and automated kiosks, rather than replaced by them.

Human interactions are essential to the provision of sustainable customer relationships. Amazon’s Prime members love Amazon because it has optimized the online shopping experience. To build the same kind of love in the real world, however, it may not be Whole Foods alone that needs to change – Amazon may need to change as well.

Rick Ferguson is CMO and Editor in Chief of the Wise Marketer Group.
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