Amazon, Whole Foods, and the Shopping Experience

There's already been a lot written about Amazon's offer to buy Whole Foods, and what it means for the retail industry. The LA Times says it's all about home delivery of groceries (link) and the NY Times focused on efficiency (link). Ben Thompson wrote an excellent analysis pointing out the logistical advantages for Amazon of buying a food distribution network along with the stores that give it critical mass (link). The article is worth reading if you haven't done so already.

I don't disagree with any of the above, but I find myself thinking back on a conversation I had recently with a former Amazon employee, and I wonder if there might not be a second motivation for the purchase, focused on what Amazon can learn from Whole Foods rather than what the company does for Amazon's infrastructure. The former Amazonian I spoke with was very careful not to discuss company confidential information, but he was happy to talk about the company's philosophy, and he said Amazon is often misunderstood.

I started off our conversation praising Amazon for its outstanding logistics, the relentless focus on efficiency that drives its dominance. The former employee gave me a funny look and said that's exactly what people don't understand about Amazon. The company's senior management isn't focused first and foremost on logistics, he said. It's focused on customer experience: How do you solve customers' problems and how do you make them happy?

What the company is relentless about, he said, is its willingness to pick away at customer problems, running experiment after experiment to find new ways to satisfy people. That's the motivation behind many of Amazon's new products, he said. Kindle? An experiment in instant delivery of digital goods. Drones? Faster delivery of physical goods. The thread tying them together is that Amazon has realized instant gratification is a very powerful benefit, and anything that moves in that direction is worth exploring.*

Usually when the tech industry talks about customer experience we think of Apple, with its focus on design and elegance. The experience of using the product becomes the product itself. Amazon's customer experience is more transactional. Nobody I know would call the Amazon website elegant in the Apple sense. If Apple ran Amazon, there would be only a single product on the Amazon home page, but it would be presented so compellingly that you'd feel driven to buy it, and you'd feel good afterward because the mere act of owning it validated your taste and intelligence.

Amazon is more about efficiency as an experience: the way you feel when you can find what you want effortlessly and get it quickly. Viewed in that light, the Echo is an extension of that effortless experience.

So then, why buy Whole Foods? The grocery industry is under chronic financial stress. Amazon could have its pick of grocery chains and logistics centers. Why pick this particular one?

I got an interesting perspective on Amazon from the speakers at Etail West, a big retail conference I attended last year. Retail and ecommerce companies get together at the conference, drink heavily, brag about their accomplishments and complain about their challenges. One of the central topics is always Amazon and what to do about it.

To many retailers, Amazon is the grim reaper: unstoppable, lurking in the background and preparing to harvest them all. For a long time retailers hoped to learn from Amazon and become as efficient as it is, to compete toe-to-toe on price. Lately many seem to be giving up on that, realizing that they'll never match Amazon's scale and efficiency. "Amazon is an algorithm," one retailer said. "You can't win by being a better algorithm than they are."

Instead, many of them are focusing on the customer relationship: Connect with people about their values and interests, give them a great in-store experience that reinforces that connection, and they'll buy from you even if it's not quite as cheap or convenient as buying from Amazon. At least that's the theory, and faced with extinction on the logistics front, that's what many retailers are trying to do.

Viewed in that light, what does Whole Foods bring to Amazon?

Whole Foods connects with its customers around values. Whole Foods has one of the best, most differentiated in-store experiences in all of retail. In many ways, Whole Foods is like the Apple of grocery shopping. It's everything that people say Amazon isn't.

Maybe the outcome of the purchase is that, as many critics predict, Whole Foods will become a soulless place where robots replace friendly clerks. Or maybe the culture clash will disrupt both companies, like a mini AOL/TimeWarner. In that case you'll eventually see Whole Foods dismembered and digested by Amazon, its stores closed down and its house brands just another line item in the Amazon store.

But what could Amazon learn from Whole Foods about in-store experience and connecting with customers around values? How much better can the Whole Foods experience become when paired with Amazon's instant gratification engine? And if Amazon can combine Whole Foods' sort of experience with Amazon's, how much more powerful will the resulting company be?

And what in the world could the other retailers do next?

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*I asked him what explains the Fire Phone. He grimaced and said he wasn't involved in that one, and besides it was designed by a team in California that didn't understand the Amazon way. I know some folks who close to that team, and they tell a different story that centers on a meddling Jeff Bezos who forced bad ideas into the product. But that's another story.