Amazon’s strategic misstep with Whole Foods

Whole Foods as a bustling food court of artisanal brands, tasting stations with smiling t-shirt clad brand ambassadors offering morsels of everything from cricket flour-made snacks to drinkable soups has become a piece of Americana.

Unfortunately, like the local Sears store or the neighborhood theatre, it may be going the way of the Dodo bird.

Yesterday’s feature in the Wall Street Journal gave us a glimpse of a challenged, misbranded future that may be coming early next year.

The article spoke directly to the disappointment in growth numbers from price decreases and the changing face of the brand as it turns away from its core positioning as a platform for artisanal local food innovation that has defined it for over a decade.

Behind the scenes, this is what made Whole Foods tick so personally and loudly. It was the essence of its allure to the wellness conscious shopper and generations of food entrepreneurs.

From low-cost loan programs supporting innovative brands in the early days, to the unique local first approach, Whole Foods was early on driven by a forager model. Business development outreach to local and regional brands easing the way for smaller companies to find visibility next to national brands on its shelves.

Making the offerings in NY different from Seattle or Nashville. Local flavor on a national platform piecing together a brand magnet that captured my generation of shoppers.

On the artisanal side, Whole Foods was the chosen launch pad, bringing food innovation to the market as local market test cases. And crafting brand loyalty in a brilliant way with New Yorkers supporting their Brooklyn artisans and locals in Austin, their hot sauce manufacturer.

Certainly, the cost of supporting a brand through this high-touch model was real, but it netted out on both side as it built customer and vendor loyalty in quite amazing ways.

At 5am on a weekday, the loading docks were a combo of tracker trailers from huge distributors and sleepy people in their SUVs schlepping ice packed insulated crates of product in a few cases at a time and stocking their shelves with loving care.

This spawned as well, a national ecosystem of shared kitchens, boutique distributors, merchandising organizations and an entire community of small companies working from the farms to the stores, sharing a conviviality that extended to the folks on the loading docks to the personalities of the buyers on the floor.

Yesterday’s piece in the WSJ hinted towards the dismantling of this community, announcing that in the new year vendor demoes (aka tasting stations) would be gone as well as all merchandising would be handled in store. And by default, a greatly reduced number of local brands in the stores paying for support services.

This will result in both less support staff for Whole Foods certainly, a different on-floor structure but the end of the store as a platform for bringing local and artisanal product to market.

To be clear, this has been coming for the last 2-3 years as the company shuffled unsuccessfully for more profitable models. Smaller brands started moving to other chains to find distribution. In-house 365 brands and cobranded solutions replaced segment after segment to drive higher margins and stronger affinity to nationally distributable products.

Here’s the rub.

Whole Foods has a broken bottom line and obviously needs to make some hard decisions.

But, this decision feels like one made by the financial arm of grocery chain out of fear, not one made by a well-capitalized highly innovative parent company that is cognizant of cost reductions but fully aware of the value of the brand itself as the key for customer acquisition and loyalty.

I view Whole Foods as a Petri dish for a new way of defining grocery, not by following in the footsteps of the big chains and just slashing costs. But by creatively rethinking the model and the brand, not emasculating it.

Grocery is all about thin margins and product shrinkage.

Why? Because organic produce, innovative ingredients and healthy food are by definition expensive and perishable. And for the most part, better for it and the lure for customers. That’s the built-in conundrum of the model.

Obviously, it makes sense to figure out how to grow and distribute organic at economies of scale that bring it to the consumer at better prices with higher margins.

But I also believe that healthy, innovative and local is the core of their brand and the largest and smartest savings come less at the management of the artisanal brands and more at the infrastructure of distribution itself.

That squeezing the producers in the supply chain is not innovation, simply line item cutting in the face of profitability without much imagination. You can easily squash the smallest vendors for the least gain, while rethinking distribution as currently structure for over a century is where the true game changer could—I think must—happen.

I expected more creativity honestly from Amazon.  They are simply smarter than this.

I expected both innovation to do things differently and a respect for the brand itself as something that made thousands of us to shop at Whole Foods regardless of price. We are the base to be leveraged, not alienated.

There is very much a balance possible here through innovation though not by becoming the very thing that Whole Foods was founded to replace.

I am still pragmatically optimistic that visionary M & A people at Amazon will see that the only solution here is a new one.  A new way.

We don’t need another Albertsons, we need a smarter and more pragmatic Whole Foods that can redefine the supply chain to benefit of us all.

I sent this post to Jeff@amazon.com so we shall see if anyone is listening.

—————-

See my other post on the Whole Foods acquisition.

 

 

 

The changing face of innovation

When we moved our lives and businesses online, we virtualized our activities and platformed our behaviors. One by one, segment by segment.

Each item we warehoused to sell, each social connection we wanted to broaden was in effect a mirroring of life as we knew it on the street.

This was a focused process of virtualizing interactions, socialization, supply chains, commerce and payments. It opened up an entire ecosystem of jobs built on creating and maintaining this meta reality.

The opposite is happening today.

This is not the second coming of the internet as many analogize, nor is it a mirroring of our world. It is a rewriting of it.

We are not as much adding efficiencies as rethinking the route. Not simply streamlining process as reconceptualizing both the why and how of what we do.

It is always the case that things we do become obsolete and vestigial over time.

But this is different.

It’s not about the uberizarion of transportation or work. Or unlocking the possibilities of restating the travel industry through the excess capacity of rooms in people’s homes.

It’s about innovation from the top down at the outset, starting with a game changing vision, rather than a bottoms up iteration of building a myriad of tiny businesses that aggregate towards larger change over time.

In some ways, this is what we all learned from Elon Musk. Where his vision of a changed electric grid preceded the model of how to finance it or even the technology that is needed to make it possible.

If everything is possible–which it is–we are in some ways vetting our vision with the belief that the rest, including the market and the business model will fall into place.

This is happening in a number of areas, starting to connect under a larger umbrella of innovation for change.

Urban transportation visionaries in autonomous transport are dreaming into existence a rewiring of the global urban grid. Changing the reality of what smart cities like NY could look like when the idea of transportation is not about a commute but simply part of our work day, creating a new block of personal time to be used as yet unforeseen ways.

Agricultural entrepreneurs are starting to prototype vertical farms with the overarching belief that organic food can be affordable to everyone. That there is a vertical footprint of farming that can support, in the city itself, the food needs of that population. Completely turning on its head the hub and spoke distribution model of today.

Scientists, technologists and marketers are joining together to take advances in Nutrigenomics and recreate an entirely new supplement industry.  One that is personalized, allowing each of us to light up our genetic maps through what we eat, instantiating longer and more productive lives and by default, changing the age diversity and definition of the work force itself. (See post on this here.)

And the critical role that cryptocurrencies, the possibilities of redesigning connections on the blockchain and capitalization through ICOs will play.

I’m starting to think, based on some comments from my friend William Mougayar that the true power of the crypto world is as a fuel for innovation that will impact each and every area of change I’ve hinted at above.

As you navigate the many early crypto economies out there, and the first iterations of how these visionary changes will play out, it is clear that there is a different dynamics to the markets themselves.

Different in how community is at once closer to being the actual marketplace itself.  Different in how the dynamics of rolling out products and brands, while certainly grounded in value and behavioral brand realities, has a very new twist.

Unlike the media models of the social nets today, I sense that the two-sided marketplace as a construct is becoming the norm, with shared ownership cross both sides.

This is easily imaginable for example in shared urban connectivity with a community of users around a mesh infrastructure. Or a reconceptualization of the food supply chain with a bank of vertical farms as something you earn ownership shares depending on the value you bring to it.

This feels like marketing hybridizing itself, a mash up of community dynamics, engagement, value and ownership.

Brand identity as well has the potential of externalizing itself to truly be what we all wanted it be aspirationally, the actualization of the individual’s views of their relationship to a product or service.

Surely, the core of buying and selling, the us and the them, intention and measuring are still real. Certainly there will always be those of us who make and create, and those of us who consume.

But something is shifting.

There is a democratization of the platforms, the workforce, the data, shared ownership  and potentially capital itself. This could well spawn innovation in larger chunks for the common good in new ways cross a global community in an endless series of markets.

To me, this sounds less and less like a dream, and more like a shared story of possibilities than ever before.

September 11th…stopping to remember

I republish this post every year on the anniversary eve of September 11th.

_______________________________________

 

 

 

 

 

 

 

All day yesterday working on my schedule, whenever I noticed the date, my concentration ground to a halt.

I kept thinking back to that Tuesday, so many years ago, being stranded in San Francisco on business with the country’s air space shut down. Sitting in bars, watching the news with strangers and having the reality of what happened burned into memory by the incessant replaying of the events on network news.

Talking on the cell to friends in New York, every one of them, shell-shocked. Many of them seeing the plane hit the second tower. Watching the buildings crumble and a very different world appear as the dust settled.

I came back on the first flight out, the Saturday night redeye, circling into JFK over the smoking debris.  I remember walking to the intersection of West Broadway and Canal, staring at the barricades on the South side of Canal Street. The surrealistic image of a Schwarzenegger movie billboard that was coming out with him fighting terrorists somewhere. In smug contrast with the real grim reality on the streets.

I’m not going to recap. We all have our memories and have dealt with them. Many moved out of town. Many took years to come to grips. Everyone moved on.

This was a pre iPhone camera world. A pre Facebook and Twitter reality where real-time sharing and connections were absent. Rather than post, you walked around seeing scores of make shift memorials with flowers and pictures of people. Telephone numbers scrawled on papers to call if you saw or heard of someone.

In retrospect, it feels like a black and white photograph of a different time. Frozen yet wrapped in very real memories. My memories as I was there.

People need memorials of horrible events to place them. I light a candle for the passing of my father and grandfather and it helps ground my thoughts. The fiasco of  building the new Freedom Tower and the passage of time has squandered the memory of this event somewhat. Even today, more than a decade later, the memorial is not really complete, surrounded by a fence and a construction site.

The reality of 9/11 was that we felt attacked where we lived. As you went further from the physical event, even uptown, it became less real, less yours and less somehow immediate.

In the years following, when I worked in LA, I tried mostly in vain at my companies to make the day mean something. Invariably it always fizzled. It meant as little to many on the west coast as to many people I work with today in their 20’s. They aren’t insensitive, but, to them, it’s a historical event, not an experience that shaped any part of who they are. That distance is the difference.

I’m not a romantic about this. And I didn’t lose any friends or family. And while sensitive and a downtowner, I don’t gush over this often or have loose emotional ends.

But it’s important, because if I don’t make it so, it will indeed go away. If the only reminder is of the skyline view in pre-9/11 movies or photos with the towers in them, this is indeed a waste.

When I posted something about this on Facebook yesterday, a friend responded that the  9/11 light sculpture that they erect every year is her favorite.

The light sculpture is indeed amazing but it’s more art than memorial to most unless we personalize it.

The connection between the fact that crazies who truly hated us navigated hijacked planes using Broadway as their map to the towers, is somehow below the surface. The family from New Jersey who I met in Union Square that brought their then young children into town to experience the community side of this nightmare, is absent somehow in those beams of light till I talk about them.

This post is my nudge to myself to spend a few moments thinking about it. Connecting the dots so that they stay real.

I’m all about moving on. I’m a hardass generally. For this particular memory, making my own little memorial of it on my blog seems like the right thing to do.

Salt Caves–where relaxation can indeed be therapeutic

 

 

 

 

 

 

I’m reclining in a comfy beach chair in a dimly lit salt cave in mid-town East zoning out while restoring my mind and body’s health and functionality.

This experience is growing on me.

Part as well of my ongoing quest to find rejuvenating therapies that not only let me live longer but better. Why wellness as a philosophy that encourages curation and control of life’s physical and mental health needs has become a side passion of mine.

Halotherapy is the umbrella category for dry salt treatments.

It is a modern interpretation of dry salt therapy that stems back to the impact on miners bodies working in the salt mines and caves of Eastern Europe and Russia a century ago. Unlike every other type of mining activity, salters were observed by doctors to be healthier, to live longer and look more vibrant after chiseling and harvesting salt underground.

During WW2, large numbers of Poles and Russians hid in these caves to escape the Germans for extended periods of time and when studied showed strong improvement in health, especially oxygenation from the impact on their lungs cross all age groups.

Originally called Subterraneotherapy, doctors in the 1940s tested treatments in controlled environments around recirculated pulverized natural salt. The Halogenator which pulverizes and circulates the salt in Breathe Salt Rooms on Park Avenue where I am in the picture above is an nth iteration of their original machine.

The basic idea is that minutely pulverized salt mist cleans the lungs, respiratory system, and the skin extracting toxins and hyper-intensifying cellular cleaning. Unlike salt baths or wet inhalers, the dry mist reaches deeper into your respiratory and immune system.

Like most wellness therapies, Halotherapy moved into the mass market after being tested and adopted by pro sports teams and fitness gurus, then popularized through wellness practitioners. This is how I discovered Cryotherapy and more advanced procedures like PRP.

Personally, I find my lungs cleaner, my energy livelier with an immediate impact on my skin after each session in these caves.

Obviously the sensation is viscerally salty, yet in a pleasant, lip licking and cleansing way. You feel super clean and mentally more acute.

Spending an hour meditating every few weeks, deep breathing in a salt cave is an activity my body is learning to crave. When I travel, cryotherapy and salt caves are invariably on my search list of places to find.

These caves are not that easy to find even in New York. Most likely because of the costliness of the equipment and installations, and their relative newness as very few were available outside of Eastern Europe till around 2000.

At $40 per hour, once a month, this works for me. I simply feel better.

Each of us is well worth this one.

________________

Other posts on health and wellness:

A surprising experiment with Cryotherapy 

First thoughts on Nutrigenomics 

The Wellness Market 

Amazon, Whole Foods and our food supply

Our food supply chain is overly ripe for disruption.

In finance and communities, we are rolling out token-based economies cross the blockchain. In transportation, we are rewiring the world under solar power.

For food however, the process of getting veggies and perishable products to the shelves of our supermarkets is not all that different than it was a century ago with horse and buggies and blocks of ice.

A few large players own the supply chain with massive refrigerated warehouses and trucks wired together with proprietary logistic systems. A high-cost, low-margin ecosystem up and down the chain that squeezes the producers on one side and the customers on the other.

Add to that the cost of government certs and regulations for organic and non gmo, and what you have is the ice-cube-in-the-sun business model with margins melted into submission and bolstered by the false belief that volume will fix a margin-poor model.

And an overarching disincentive for innovation in the artisanal food market.

Enter Amazon and Whole Foods.

Whether you care for them or not (I like them both a great deal), this huge experiment is being done in a very small market sandbox comparatively but will create a tsunami of change for the segment if successful.

Starting this coming Monday, only 90 days after this multi-billion-dollar acquisition was announced, change will already on the shelves. Change that as we move forward will impact everything about how quality organic and fair-trade food outside of seasonal green markets gets to our tables.

I know only what is in today’s Amazon Press Release, plus considerable experience as a vendor and customer, and a long-term student of the organic food, beverage and wine markets.

On Monday, many of Whole Foods shelf-stable, 365 everyday brands are supposed to go on Amazon.com for home delivery. Prices drops for a few categories of products roll in. And Prime, the club for same/next day free delivery/shipping, for access to movies and media, starts its unstoppable rollout as the discount loyalty club for everything from paper towels to organic rotisserie chicken to organic wine.

Rumors abound on what the core strategy is and how the logistical genius that is Amazon will run headfirst in the logistical hiccups and cost of the current paradigm.

This experiment is with nothing less than our food supply impacting our wallets at checkout and the future for thousands of artisanal brands that are dependent on this channel.

I’m an optimist and forecast nothing but dramatic yet solidly needed change.

Change that will get carbon-copied by everyone and will spark another massive wave of consolidation if it proves successful.

If we start with Amazon and Whole Foods stated goal of bringing high-quality organic products to a larger swatch of the population at more affordable prices, we can be certain of the following:

Ownership and configuration of the supply chain will change

Organic agriculture is scalable. In fact, technology is a boon potentially to increasing production, indoors and out, of organically grown goods.

I believe that Amazon will need to own in some fashion the food production in order to make this work. They are in a position to capitalize this where few are.

The way to control margins here is to own the production and control the process itself.

Distribution from logistics to storage to delivery will be reinvented

This is a quagmire of issues for short shelf life, perishable, refrigerated and frozen products.

It takes care and money to grow organic crops certainly. It takes as much to address a delivery chain that respects the shelf life of these products. This is part logistics, part mechanics of delivery.

Today the growers, the distributors and the retailers are all separate. With disparate systems that simply don’t interact well if at all.

Amazon has the DNA to rethink this from the ground up.

Change will happen though for certain as that is how to reduce prices and increase margins and better serve us the customers.

Amazon already touches the customer base, in fact most all of them

Customer acquisition and communications are usually the largest budget line item. Herein lies Amazon’s greatest asset.

They already have us as customers of amazon.com, Prime and more. They know how to leverage this.

That is who they are. The rest above is all logistics and vertical understanding.

Non-trivial certainly as an undertaking but imaginable that they could win.

Two gotchas that I worry about:

-Whole Foods was born on the idea of local and artisanal

That was the secret sauce of their success. That connection let them thrive even with higher prices in communities everywhere. Foragers were their business development people and built their brand.

There are ways to do this at scale and still both respect and capitalize on the local brands.

I hope they will.

-Neither Whole Foods nor Amazon understands the wine consumer

Both entities individually want this segment with its margins.

Amazon has tried multiple times and failed. Whole Foods never really got this right.

On one side, I am not a fan of them touching the artisanal wine world. On the other, if they respect the producers this could—I’m not certain here—be good for many.

I’ve seen no indication that they have figured this out as yet as rumblings of them buying vineyards and coming up with their own brands is I think the wrong tact.

This is going to be a long, disruptive and strange trip. 

I am optimistic that Amazon will figure out how to bring high-quality, non gmo, organic products with a community of producers to the market at better prices.

Them winning may be the best thing that could happen for all of us.

This is not however free shipping, or streaming media, it’s more personal as it is our health and the food that we buy for our families.

This is not luxury e-commerce, it’s a supply chain that feeds our lives.

The new order starts Monday. We are all players in this game.