30+ new Whole Foods leased, more on the way

[ClownLoach]

In a rather quick about-face, Whole Foods and Amazon are commenting about future growth again. Although this article is mainly about resurrecting the daily shop small format, they reveal a lot about changed strategy that has not been discussed previously. They have merged store development between Amazon and WFM which is a very important detail. It is likely that they've combined everything, because when Fresh was first under development with incompetent Tesco people in charge there was a "firewall" between WFM and Fresh. They built completely separate systems, processes, etc. This article is the first reveal of integration of any part of Fresh and WFM aside from sharing 365 brand.

Furthermore it states there are 75 new stores in the pipeline (planning stages) with 30 already leased plus some of the daily shops. So after all indications were that the list of upcoming stores had dwindled down to the last one, there is a large wave of new WFM stores coming.

I visited Santa Barbara this past weekend and was rather surprised to see WFM had lowered prices all over the store. They've just put a small yellow tag on the lowered prices, and they have also moved away from digital price tags entirely. I was surprised to see that on produce especially they were undercutting Ralphs and Vons in the area with better quality product. Problem areas such as the salad bar and hot bar that had deteriorated greatly under formulaic recipes and such looked much better than I've seen in several years. The store was also expanded by reducing the offices and backroom space along with redoing all the perimeter; this was an old Circuit City and the store originally still felt like one before this major remodel added a lot of floor space without expanding the walls. The linked article explains this is a current initiative for WFM. So it seems that after Amazon set aside enough money to liquidate Fresh last year and put new leaders in charge we are starting to see some of the problems possibly being fixed. They still have a long way to go, I don't understand why they seem to have vendor delivery issues to Fresh for example. As we all realize that the Kroger-Albertsons merger couldn't be completed because there really is no viable supermarket competition in most markets, it is good to see Amazon actually doing something to fix this business that has been in limbo and stagnated for years.

Lots of "read between the lines" in this article...

https://progressivegrocer.com/your-burn ... s-answered

[storewanderer]

Could they be trying to prop this thing to spin it off...?

[pseudo3d]

Could they be trying to prop this thing to spin it off...?

If they combined the operating units, the Amazon Fresh stores need to be renamed, licensed, or closed.

[ClownLoach]

Could they be trying to prop this thing to spin it off...?

This sounds like a multi year process though to get things back on track. They've obviously decided they intend to see the process of fixing WFM and Fresh through. I think if they were going to spin off the retail or sell it then they should have done so in the last year when they had that nearly billion dollar charge taken. We hadn't heard much after that charge, they did mention new leadership for Amazon Retail which indicated the Tesco people might have been sent packing. But there are glimmers in the interview where they are indicating that they are bringing the company into the Amazon fold finally. That aligns with the responses to past negative feedback at WFM where they basically said they weren't closely involved with the day to day operations and that basically the changes would have happened even if Amazon hadn't bought them. 18 months or so ago Amazon was still basically saying they made only three major changes to WFM, Prime for sales, taking Amazon returns/lockers, and using Amazon app/flex workers for eCommerce processes. Now Amazon is apparently deeply involved in sourcing, real estate, store design, data and analytics. All of these are things they probably should have taken over from day one, and also had the WFM team share best practices with the team developing Fresh and Go. None of this apparently had occurred until very recently based on this interview.

One area they mentioned was redoing stores to eliminate most of the back room and expand the assortment to grow sales. This is a lot of work, but it looked good in Santa Barbara. I know how small that building is, and I was surprised how large the store feels now which tells me that they must have huge back rooms wasting space in a lot of other stores. Definitely could be big $$$ in such an initiative. Don't underestimate this one especially for what they can do with their cramped urban stores. I also remember reading complaints from WFM workers who were angry that they now had planograms, automatic ordering and replenishment, distribution centers instead of a million different vendor deliveries, and had to maintain inventory on hand quantity counts. It sounded like each department manager would build their own little kingdom of inventory, which now was unnecessary as in every other major retailer where the systems replenish the stores. That must have meant tons of product clogging huge back rooms. I think there is a major sales opportunity here as it sounds like a quarter of their store is back room space in most cases.

The other pieces are the sourcing discussion, construction etc. which now are centralized like any other retailer of their size. I am surprised as to how primitive some of the operations were at WFM based on this and other interviews. The quality concerns have been what has plagued this chain since about the same time as the Amazon acquisition, but WFM made those mistakes themselves as they tried to consolidate buying and make national policies without any experience. It sounds like the Amazon people are trying to fix this, and frankly if standardized buying had been implemented correctly by WFM then their standards should have improved instead of declined. Cultural problems didn't help as tenured employees felt their antiquated processes were superior to modern retail which is not true, so the employees became disengaged and didn't try to learn the new ways so execution became poor until they changed the staff behaviors (or replaced them).

What I think we all saw were a mess of ideas slopped together across Fresh and WFM but now they're sorting the diamonds out of the mud. WFM had good experience to share but knew nothing about how to leverage their size to cut costs which led to disaster as they attempted to streamline under pressure but failed and sold out. Then Amazon was already using Tesco, SpartanNash, and loads of Target people to develop Fresh but firewalled the WFM team and kept them away. Now it sounds like they're trying to fix these messes, they've learned everything they can from the Tesco and Target people who seemingly are gone from the mass layoffs. They are obviously merging Fresh and WFM finally which should have happened a long time ago.

So I don't think they're going to spin or sell the retail operation at this point. It sounds like someone decided they've already sunk tens of billions into grocery stores with limited success but they're not going to give up so easily. They're going to take the hard road and try to fix their mistakes. Since there really is so little competition out there as the merger attempt has made so clear, I am all for Amazon seeing this through and becoming a viable competitor in the marketplace. Good luck to them as they're going to need it.

[ClownLoach]

Could they be trying to prop this thing to spin it off...?

If they combined the operating units, the Amazon Fresh stores need to be renamed, licensed, or closed.

The remodeled Fresh stores are very different from the originals, and I was surprised to see that they are busy like when they first opened. Irvine was fully remodeled to the new prototype and has definitely seen a big traffic boost. It does have a much higher center store SKU count that is more realistic than the previous concept. They obviously have no plans to close Fresh now as they've started leasing and building new sites again, even though they're sitting on others that aren't finished. Based on a couple of the sites leased in the last few months and already under construction, it looks like they've decided to build larger Fresh stores. Laguna Hills is a very large building I would have expected to see as a Whole Foods but it's going to be Fresh instead. So I do wonder if they're going to repurpose or close the smaller format stores as it's pretty obvious they don't work. The more successful units have been in the 40K size plus range in large former Toys R US and other big boxes. They were building a lot of smaller 30K or less boxes which are sitting unfinished and being subleased or abandoned as reported elsewhere. Small formats like Murrieta for example do not work at all for this concept and need to be expanded or closed. But I don't think they have a lot of these smaller formats, I know of Murrieta but not sure where else they even opened the smaller ones. Murrieta is a converted Rite Aid, former Thrifty, for size comparison.

Although it may seem to us that the concept and brand has failed, the truth is the vast majority of the country has never seen an Amazon Fresh store and as such can't pass any judgment on it. For the very few markets they are located in, they can spend money on aggressive ad campaigns and such to inform customers they've remodeled the stores and added thousands of items to the assortment once that work is completed.

[storewanderer]

I don't think Fresh will be successful. I am not sure what they are doing but if I were them I'd convert what may make sense to Whole Foods - maybe some to a watered down format like the 365 that they killed - staff them up like a Whole Foods, and close the rest or spin the rest to Grocery Outlet or someone like that.

[rwsandiego]

I was (pleasantly) surprised to see several local brands return to Whole Foods in Phoenix. Just a couple of years ago they eliminated almost all local product. Someone figured out that people who shop at Whole Foods want to buy local.

[storewanderer]

I find Whole Foods to be a very strong brand. Even though I've had quality issues since Amazon took over, the stores do very well in most places I visit them. I have found pricing to be terrible so I will have to go take a look at these price cuts. I didn't notice them about 3 weeks ago when I walked through the Reno Store. I'd like for them to go back to the .49/lb bananas. I can still get that price at Smiths most weeks. If I go to the right Smiths. If I go to the wrong Smiths it may be 0.65/lb.

[ClownLoach]

I was (pleasantly) surprised to see several local brands return to Whole Foods in Phoenix. Just a couple of years ago they eliminated almost all local product. Someone figured out that people who shop at Whole Foods want to buy local.

Although they've made a lot of mistakes, the problems originated within WFM. Love or hate Amazon, they have a strong culture of forcing people to listen to customer feedback and take action. So yes, WFM was probably right to stop letting each store basically order it's own goods and merchandise their own stores manually. They have likely saved hundreds of millions of dollars by centralizing these programs, making planograms and schematics, signing contracts with suppliers etc. But they didn't have the experience to set proper terms to maintain or even raise the quality the brand was known for. It seems like Amazon is now forcing them to fix these problems. Same for local vendors which had been stripped from the stores, they're back in force. You can buy local product while still having centralized purchasing and automatic replenishment, WFM just didn't understand the concept. It is very clear from all of the feedback that WFM would look exactly the same if Amazon had not bought it because they set out to fight off hostile takeovers by making drastic operating changes with no experience in modernizing the business, only to realize it wasn't working and then they gave up and sold to Amazon. But then Amazon took a hands off approach until very, very recently.

I also mentioned that they definitely got a cultural problem which developed after all the process changes. You had zero standardization of jobs, procedures, offerings etc. One butcher might have wanted to stock the case with more chicken than beef. Another might have wanted to feature a bunch of meat substitutes like Impossible. Although there was a good idea in letting the store make appropriate changes for the local market, there was more bad in the lack of standardization especially around food safety procedures, equipment maintenance and cleaning. Many of the stores had extremely experienced butchers who for example knew how to perform heavy maintenance on machinery. But the company made the right decisions to outsource such work to professional vendors and then implemented standardized policies such as how often each work area or piece of equipment is to be cleaned and sanitized plus documentation for such work like temperature logs and cleaning checklists. In the aftermath of similarly run Chipotle's food poisoning crisis the additional procedures and documents were essential, along with planograms and automatic ordering, perpetual inventory, etc. But the line level employees did not get explanations, they got orders and were told to follow them because that is the culture that was in the company. You do as you're told and don't ask questions. I believe that disconnect and anger led to malfeasance, intentional neglect and abuse, etc. which was observed in the serious quality defects over the last several years. Unfortunately when you have a workforce of people who were hired to work independently and autonomously, then change the culture to scheduled and scripted routines and procedures there will be a massive cultural revolt until the staff is changed to people with compatible personalities and management is changed to a transformational leadership style. The cultural change is the real reason why WFM struggled, and Amazon had absolutely nothing to do with it. I would imagine that Amazon had to hire many Industrial-Organizational Psychologists into the WFM HR department to correct these problems.