Acquisition of whole foods by Amazon PDF

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Acquisition of Whole Foods by Amazon

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Table of Contents Introduction 3 SWOT analysis Strengths

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Weaknesses 4 Opportunities Threats

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Ansoff matrix5 Market penetration 5 Market development

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Product development

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Diversification

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Profitability analysis 7 Conclusion

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References

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Appendices

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Appendix 1 10 Appendix 2 13 Appendix 3 16 Appendix 4 19 Appendix 5 21

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Research question：How does the Acquisition of Whole Foods Helps Amazon Increase its Profit? Introduction Mergers and acquisitions are concepts in the corporate worlds that have high levels of risks and uncertainties. The process first compromises the autonomy of the organization which has to consider the means of fusing their organizational cultures while maintaining the loyalty of their clients (Baertlein, 2017). An important consideration is the profitability of the entire process which forms the foundation for the acquisition (Whitten, 2017). In the case of Amazon acquiring Whole Foods Inc. in 2017, the two organizations had to work through several operational processes while maintaining the loyalty of their consumers and hopefully attracting new clients. The fusion of the two organizations would involve the combination of online retail with its pros and cons, combined with the factors that arose from retailing through brick and motor outlets. Therefore, while consumers enjoy Amazon for its convenience and speed in delivery of commodities, they enjoy Whole Foods for the function of freshness and quality (Hoffman, 2017). The function of maintaining the loyalty of the two sets of consumers formed an arduous task for Amazon and Whole Foods Inc. which in the initial years realized significant operational costs and risks that went into increasing awareness. SWOT analysis Strengths The acquisition of Whole Foods Inc. by Amazon represented a combination of strengths that resulted in a sales increase for the new outfit with combined operations. The acquisition, in essence, blended the benefits of Amazon as an online retail store, with the benefits of Whole Foods Inc. which mandated to provide the consumers with fresh grocery commodities for home use. Therefore, the combination of freshness and speed in delivery

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presented an outcome that would increase the clients for Amazon in addition to providing benefits to the existent consumers who have prime membership at Amazon stores. In fact, following the merger, the promotional process involved a two-hour service for the free delivery of the groceries that the prime members purchased from the Amazon outlets in their regions. Weaknesses The significant weakness at the time of the acquisition was the limited coverage of the new services that the store offered to the consumers. Understandably, Amazon is a global retail outlet that delivers in most of the European regions. However, with the acquisition as well as the benefits that came to the consumers in the store, the retail giant could only deliver in select regions that included Austin, Cincinnati, and Dallas along with the region of Virginia Beach. The announcement for the acquisition in addition to the offer for service delivery that could increase the value of customer service and relations was in 2018 as the store made plans to extend the benefits to all the regions within the United States at the close of 2018. The limitation of services and benefits to consumers in the select region was a weakness because not all the consumers could enjoy the benefits that the store provided following the acquisition of Whole Foods. An additional weakness is perhaps in the operations of the two organizations in addition to the organizational culture which had to evolve to accommodate the new position of Amazon and Whole Foods which were now working in unison (Baertlein, 2017). Opportunities Ultimately, Amazon could capitalize on the union with the retail store to tap into a market that does not access previously. Besides, Amazon now has the opportunity to utilize the retail store in promoting its different products that include Amazon Kindle and Amazon Echo by convincing the consumers that they can benefit from integrated services. The

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opportunities at Amazon also include introducing Amazon shoppers to the concept of prime membership through the offers that are available for the prime members at the Amazon store. Threats While the union of Amazon and Prime Foods presented numerous benefits both to the stores and to the consumers, some threats are becoming evident in the operations. One threat that might affect profitability and future operations is the threat in which the two stores have now compromised the quality of the fresh produce that the retailers previously obtained from Whole Foods Inc. outlets through the new distribution processes. Additionally, Amazon could only manage to slice the prices at the Whole Foods stores by doing a cost-benefit analysis in which the suppliers would now get low prices for their fresh commodities (Colvin, 2017). The compromise on the quality of the product presents a threat to the future profitability of the organization. On the other hand, the organization stands to threaten the relationship that it has with the suppliers who are important in ensuring the freshness of the commodities that consumers obtain from the stores. Ansoff matrix The strategic planning tool that is the Ansoff matrix is useful in aiding an organization as it devices the strategies for future growth. The strategy combines the analysis of market penetration, market development, and product development along with diversification. Market penetration At Amazon, the market it is clear that the store is a giant in online retail. However, the acquisition of Whole Foods Inc. is an indication that the organization has to enforce market penetration strategies that would increase the share of the organization in the fresh food market both for online and offline retail services. Ideally, the method that Amazon can employ is through increasing awareness of the fresh foods component that is part of the services that it offers to its consumers (Hoffman, 2017). Increasing awareness is through

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advertising and marketing campaigns that touch on the benefits that the store has to offer to its consumers within the target region. Market development While the market for fresh produce is large within the United States, the larger European region in which consumers can access Amazon services, along with global regions, the market for fresh farm produce under the label of Amazon remains a new concept to the consumers. Amazon, therefore, has a task to develop the new market for obtaining fresh farm produce through online channels and delivery methods (Hoffman, 2017). The consumers would accept the new market once the organization guarantees that the produce from Whole Foods Inc. remain as fresh as they were before the acquisition. Whole foods had curved its unique niche in the grocery market that stands to be challenged with the acquisition. Product development The concept of product development is clear because the product is fresh farm produce. However, the additional consideration of online delivery and ordering of the product requires that the store initiates mechanisms that will provide reassurances to the consumers that the mode of ordering and delivery does not alter the quality of the product. The threat that the store faces from the decline in the quality of the product can be addressed via product development so that the consumers continue to enjoy the quality of freshness that Whole Foods Inc. provides before the acquisition. Diversification Whole foods had established its brand as a store that supplied fresh groceries to the consumers through their stores that are located within the United States of America (Hoffman, 2017). Amazon, on the other hand, has established itself over the years as an online retail giant that deals in all home and office appliances and electronics as well as farming and industry tools. The acquisition of Whole Foods by Amazon not only changed the

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view that the retailers have of the store but also increase the opportunities that the store has in retail marketing. Therefore product diversification for the Amazon store that now has Whole Foods assets involves an increase in the services and opportunities that are available to the consumers in the fresh foods market. Profitability analysis Profitability analysis utilizes the intermediate allocation drivers to determine the output units for all the costs at the organization in a process termed as costing. Costing allows the analysts to determine the cost allocation from the production process by deducting them from the revenues for each unit of output to determine the margin of the product. Percentage change in sales = (First quarter 2017 sales – fourth quarter 2016 sales x 100)/ Total sales = ($16,000- $15000) 100/ $31, 000 = 3.23% In the case of profitability analysis following the acquisition of Whole Foods by Amazon, the product under consideration include the individual grocery store items in addition to the volume that the organization realizes in sales. The analysis includes promotional measures along with the resultant profitability (Whitten, 2017). From the consideration, the acquisition of Whole Foods by Amazon has not yielded any promising results since 2017. The only notable change occurred during the promotional period in which the sales increase. However, once the promotional period ended, the sales and profitability in Whole Foods showed a declining trend that is not beneficial to the two organizations (Whitten, 2017). An additional consideration is the lowering of the prices. Although the promotional measure contributed to an increase in sales during the promotional week, the organization did not see any changes in the registration of new consumers. The beneficiaries

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of the promotion and the drop in prices remained the individuals with Amazon prime membership

Conclusion Maintaining the loyalty of the two sets of consumers formed an arduous task for Amazon and Whole Foods Inc. which in the initial years realized significant operational costs and risks that went into increasing awareness. The retail business has a vast set of opportunities for investors. It should be noted that Amazon is a store whose operations are fundamentally online. Therefore, the organization fails to tap into the opportunity that is presented by the consumers who desire a brick and mortar outlet to obtain goods and services. On the other hand, Whole Foods Inc. is an American retail store that has physical locations. The combination of retail and online services has a way of compounding the opportunities that the organizational top managers and investors can enjoy (Colvin, 2017). On the overall, the acquisition of Whole Foods Inc. has contributed to a change in the sales at Amazon which analysts are still observing to see the beneficial outcomes for Amazon.

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References Whitten, S., 2017. Whole Foods Market third quarter earnings 2017. CNBC. Baertlein, L., 2017. Whole Foods cuts 2017 profit, sales forecasts as growth lags. Reuters. Colvin, G., 2017. Amazon Will Probably Eliminate Jobs at Whole Foods. That’s a Good Thing. Fortune. Hoffman, B., 2017. The Problem With Whole Foods. Forbes. Hortaçsu, A., Syverson, C., 2015. The Ongoing Evolution of US Retail: A Format Tug-ofWar. The Journal of Economic Perspectives 29, 89–111.

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