Whole Foods under Amazon“The stress has created such a tenseworking environment. Seeing someone cry at work is becomingnormal.”—Whole Foods West Coast regional supervisor, January20181By March 2018, six months had passed since natural foodssupermarket chain Whole Foods Market had been acquired by Amazon.The $13.7 billion deal—Amazon’s largest acquisition to date—joinedtwo iconic brands and appeared to position Amazon as a pioneer atthe intersection of e-commerce and brick-and-mortar retailing. Somespeculated that the acquisition was one more step on Amazon’s pathtowards creating a holistic life package, in which customers couldbuy anything through Amazon and have it delivered to theirdoorsteps.2 But many wondered how the two companies wouldintegrate. Whole Foods was viewed as a positive,sustainability-oriented company offering healthful products andlifestyle choices to the masses. Employees described it as anempowering, enjoyable workplace. Amazon was an e-commerce pioneerthat had made inroads into virtually every corner of consumers’shopping needs. Its workplace culture was often described asdemanding, sometimes even contentiously so.3The deal closed amidstupheaval at Whole Foods. For two years prior to the acquisition,its sales, margins, and stock had been slipping as organicgroceries became increasingly mainstream and competitors offeredmore affordable options.4 In early 2017, two months before the dealwith Amazon was announced and in response to pressure from activistinvestors, Whole Foods overhauled its board and introduced newemployee policies and inventory management systems. Leaving CEOJohn Mackey and other senior management in place, Amazonimmediately lowered prices for many Whole Foods products in anattempt to lure in more customers. They continued to roll out newpolicies including an order-to-shelf (OTS) inventory managementsystem, under which inventory was delivered by trucks andimmediately placed on store shelves, rather than in storage rooms.Proponents of OTS believed it led to less waste and meant fresherproduce available to consumers. But in early 2018, customersreported food shortages at Whole Foods stores, which many employeesblamed on OTS. The new system also came with strict rules forpurchasing, displaying, and storing goods on shelves. Whole Foodsused scorecards to enforce accuracy and evaluate employees’compliance with the new system. For years, store team leaders hadbeen empowered to make their own inventory decisions and tailortheir stores to meet local needs, and many struggled with the OTSroll out. These changes led to complaints from unsettled employeesconcerned about the company’s future and how their own roles werechanging. Speaking of the new workplace stress, one regionalsupervisor commented anonymously, “The fear of chastisement,punishment, and retribution is very real and pervasive.”5ShouldAmazon push Whole Foods to improve performance by emphasizingefficiency and standardization among its stores? Or should it aimto maintain a sense of empowerment among employees? What changes,if any, should Amazon make to improve the performance of WholeFoods? Whole Foods Whole Foods was founded in 1980 in Austin,Texas, by CEO John Mackey and Renee Lawson (co-owners of Safer WayNatural Foods) and Craig Weller and Mark Skiles (co-owners ofClarksville Natural Grocery), after they merged their grocerystores. At that time, only a handful of natural food supermarketsoperated in the United States. Whole Foods slowly expanded in Texasuntil 1988, then purchased natural foods store Whole Food Companyin New Orleans and, in 1989, expanded to the West Coast.6 In 1992,the company went public and, over the next two decades, grewthrough mergers and acquisitions with other health food stores.7 In2002, Whole Foods entered the Canadian market and in 2004, the UKmarket.8 Most Whole Foods stores were in upper-income urban andsuburbanareas, including many busy shopping areas.9The typicalWhole Foods consumer was considered to be health-conscious andinterested in wellness. Many were well-educated, and earnedhigher-than-average incomes.10 Whole Foods catered to customersconcerned with the integrity of the food they bought and thecompanies that sold it.11Many customers also wished to supportlocal businesses and were attracted to Whole Foods’ selection oflocal goods. The company viewed its customers as stakeholders.12 AsMackey explained, “Whole Foods Market does not think of ourcustomers as consumers or even as clients; we prefer to think ofthem as our friends and our guests when they are in ourstores.”13Whole Foods differentiated itself with a large selectionof healthy natural food not found in competing stores and bynotcarrying many products that traditional supermarkets typically had,such as sugary sodas (e.g., Coca-Cola) or products that it deemedcontributing factors to childhood obesity. Instead, they carried“healthy” drinks such as kombucha.14As Whole Foods expanded, it wascredited with bringing organic food into the mainstream andemploying a variety of sustainability practices and values.15 By2009, the company was using the Non-GMO Project’s ProductVerification Program to label its store-brand products.a WholeFoods was the first supermarket chain certified under the GreenBuilding Initiative’s Green Globes Program, a green buildingratings system. Before the Amazon acquisition, the company’s valuesincluded selling the highest-quality natural and organic productsavailable, satisfying and delighting customers, supporting teammembers’ happiness and excellence, serving its communities,advancingenvironmental stewardship, creating win-win partnershipswith suppliers, and promoting health.16 (In 2018 Mackey updatedWhole Foods’ core values to better align with Amazon—for example,by adding“We Create Profits and Prosperity” as a priority—seeExhibit 1 for Whole Foods’ core values before and after theAmazon’s acquisition of the company.) In 2011, Whole Foods rolledout the Global Animal Partnership’s 5-Step Animal Welfare Ratingsystem for meat, which ranked the conditions animals were raised inon a 1-5 scale. By 2014, Whole Foods ranked #20 on Fortune’s“World’s Most Admired Companies” list.17Employee Culture at WholeFoodsWhole Foods had long held a reputation as an enjoyableworkplace and, for 20 consecutive years through 2017, was listed byFortune as one of America’s 100 best companies to work for.18 Inthe surveys used to compile that list, Whole Foods employees citedgood benefits—particularly for in-store employees—relative to thoseat other grocery chains.19 Respondents also reported a sense ofindividuality, opportunities for professional growth, and anemployee structure that fostered a strong sense of teamwork. Manysuggested that Whole Foods’ organizational mission and purpose werewell reflected in their daily work.20 Whole Foods was organizedaround teams. Employees at all levels, regardless of seniority,were called “team members” as a way to communicate accountabilityand responsibility. Regional offices(which oversaw store operationsin a region) and local stores were considered teams,whiledepartments within a store were also their own teams. In-storeteams were “self-managed,” meetingregularly to discuss projects andto work through issues.21 Each store had about 13 teams, each ledby a team leader and responsible for a product category,department, or aspect of store operations such as customer service,prepared foods, and grocery. A store’s team leaders worked togetherto operate the store as efficiently and profitably as possible.Twice each year, team members completedconfidential surveys toprovide feedback on team leaders.22“Whole Foods is serious aboutaccountability,” one observer noted. “Teams are expected to setambitious targets and achieve them. But accountability does notimply bureaucratic oversight. . . . [P]ressure for performancecomes from peers rather than from headquarters and it comes in theform of internal competition.”23 Teams competed against theircounterparts in other stores to exceed sales targets.24 “Teams,stores, and regions compete vigorously to outdo each other inquality, services, profitability,” one observer explained, “and theresults of those competitions translate directly into bonuses,recognition, and promotions.”25 The company instituted a“gainsharing” program of bonuses based on overall teamperformance.26 Mackey added, “We don’t have lots of rules handeddown from headquarters in Austin. We have lots of self-examinationgoing on. Peer pressure substitutes for bureaucracy. Peer pressureenlists loyalty in ways that bureaucracy doesn’t.”27The companyencouraged team members to submit ideas to team leaders and, overthe years, Whole Foods implemented several. For example, abestselling bread recipe was developed by a team leaderin Santa Fe,New Mexico, while bicycle delivery began as an idea from a cyclingenthusiast in Austin.28“Energy and ideas work their way up, ratherthan the other way around,” Mackey explained.29Staffing andtraining was carried out by individual stores. Applicants for allpositions first had a phone screening before meeting one-on-onewith a recruiter and hiring manager, followed by group interviewswith employees. One employee explained, “We also have what we call‘speed meetings.’It’s like speed dating, where we bring in severalcandidates at the same time and they answer questions from a groupof managers, recruiters, and employees. At the end of the process,there is always a panel interview. . . . We do all of this becausefinding the right fit is the most important aspect of hiring a newemployee. We want to ensure that they will be happy and we will behappy as well.”30 After 30 to 60 days on the job, the employeeswere evaluated by their team to determine if they should remainwith the company.31Whole Foods was fairly decentralized—with 12geographic divisions, each with its own regional president whooversaw the store network—and traditionally preached empowerment atall levels. Stores had considerable autonomy regarding inventory.Although some purchasing was done at the regional or national levelto negotiate better discounts, for the most part store leaderscould decide what to carry and where to place it.32, 33 Whole Foodsdid not centrally track individual store inventory; it only trackedwhat had been sold through its point-of-sale (POS) system.34, 35The corporate office only stated that stores could not carryproducts with artificial flavors and colors, preservatives,sweeteners, or hydrogenated oils.36 This autonomy allowed stores tosource local, fresh ingredientswith short shelf lives and itempowered employees with responsibilities that were typicallycentralized elsewhere.Each month, stores received sales andprofitability data from headquarters that included product costs,salaries, and operating profits. The information was not publiclyavailable, but was used by storeteams responsible for makingdecisions on labor spending, ordering, pricing, and other factorsthat determined store profitability.37 Teams also had access toinformation on other stores. One store manager might review anotherstore’s top-selling products for ideas on new products to carry. Asoneobserver explained, “Lateral learning—finding out what yourcolleagues are doing right and carrying those practices into yourorg[anization]—has become a driving force at Whole Foods.”38As oneWhole Foods executive explained, the company believed its employeeswere its most important asset: “[I]n any company, what is yourgreatest resource? It’s your people. And to the extent that theyfeel empowered to do their best, that is so, so wonderful for anycompany.”39 In a 2010 blogpost, Mackey expanded:The effectivenessof teams is tremendously enhanced when they are fully empowered todo their work and to fulfill the organization’s mission and values.Empowerment must be much, much more than a mere slogan, however. Itshould be within the very DNA of the organization. Empowermentunleashes creativity and innovation and rapidly accelerates theevolution of the organization. Empowered organizations havetremendous competitive advantage because they have tapped intolevels of energy and commitment which their competitors usuallyhave difficulty matching.40In his book Conscious Capitalism, Mackeyoffered an example: In 2007, during a snowstorm in West Hartford,CT, cash registers at one store stopped working. This store hadonly recently been converted from an acquired Wild Oats store andthe technology systems had not yet been integrated. As customerslined up to pay, the assistant store team leader running the storethat day discussed the situation with his team members and decidednot to charge customers. Instead, they bagged their groceries andtold them to drive safely. Although the store gave out $4,000 worthof groceries that day, the assistant store team leader had notneeded permission from anyone higher up. A customer contacted areporter at the Hartford Courant who wrote about what happened, andit became one of the most e-mailed stories of the day, giving thestore positive press.41Company GrowthIn 2011, Whole Foods announcedit planned to grow to 1,000 stores over the next 10 years.42 Mackeywas committed to opening stores in “food deserts,” less-affluenturban neighborhoods with limitedaccess to fresh food. The companybegan experimenting with smaller-format stores in poorer districtsin Detroit and New Orleans and on Chicago’s South Side. To betterreach these consumers, Whole Foods emphasized its “365”private-label brand, created as a discount organic brand in 1997,and began to test new pricing and discount strategies.43 But whilethe number of locations increased from 311 in 2011 to over 430 by2017, the increase in the size of its customer base had beendisappointing: surveys found that the percentage of U.S. shopperswho shopped at Whole Foods had only grown from 7% in 2009 to 8% in2017.44 Some speculated that this was because Whole Foods clusteredstores close together. For example, in the suburbs of Chicago,there were three stores within a four-mile radius, all competingfor the same shoppers.45 In early 2017, the company announced itwas closing at least nine stores.46Another reason was increasingcompetition in the “organic” segment of the market. Between 2005and 2015, organic food sales grew 209% in the U.S. and, by 2016,exceeded $43 billion.47 As demand grew, traditional supermarketsbegan competing aggressively with Whole Foods on price andselectionof organic food. Walmart began carrying more and, in 2012,supermarket chain Kroger introduced its own organic brand, SimpleTruth. (See Exhibit 2 for Whole Foods and competitors’ keyfinancials over time.) One observer noted, “Organic food has neverbeen so popular among American consumers.

Question:

1. Which of the seven factors/outcomes of acquisition aremost a) positively and b) negatively impacting the Amazonacquisition of Whole Foods? Use data from the case to support youranalysis.
2. Based on your analysis how should Amazon address theissues at Whole Foods that were created by the acquisition? Usedata from the case to support your position.