Who’s Set to Win in the Amazon and Whole Foods Deal?

August 28, 2017

By John Munce, Chief Customer Success Officer
The Tatham Group

CEO’s have turned to mergers again. 2015 witnessed a ‘merger bonanza’ in global business, reaching $4.7 trillion dollars in announced mergers and acquisitions (M&A).

Digitization, scale and growth capture the minds of CEO’s and their boards. An acquisition can seem like a silver bullet to solve any problem.

Just consider the acquisition of Whole Foods by Amazon for $13.7 billion dollars cash. The market loved it. In response, Amazon’s share price rose enough to pay for the deal the next day. Will customers love it as well?

Ultimately, execution for the customer creates returns. In a recent M&A study, an overwhelming majority of leaders confessed they fell short on expected value and return on investment from their 2015 and 2016 deals.

Falling short on deal returns can lead a CEO to being pushed out. Last year, one in six CEO’s departed the largest public companies. Of them, a third were forced out, including those explicitly due to a merger.

A merger can be a gamble like a game of Russian Roulette. A CEO can win big or lose it all. To win, your deal must pass three tests about the partners and the customers.

Test One: Protect the smaller partner

How can a small partner hope to survive the cultural bear hug of an Amazon? Be willing to make exceptions to preserve the value you just paid for.

Whole Foods has a well-regarded physical presence. They have a brand tied to high value and high prices. They have a proud culture. As a measure of protection, they will operate as a separate subsidiary. But a clash seems inevitable.

Amazon is an expert in delivery and has pushed into same-day delivery. In customer minds, Amazon is synonymous with home delivery. It is over twice the size of Whole Foods with an aggressive, somewhat arrogant culture.

Can the smaller, high-end Whole Foods become the mechanism for Amazon to conquer groceries? Doubtful, but if anybody can, bet on Amazon.

Test Two: Address what troubles your customers

No firm does everything perfectly. Nothing stays constant while you’re trying to get it right, because customers will raise the bar. Don’t let the merger distract you from fixing what bugs your customer.

Whole Foods has been having trouble continuing to grow with its customers. They seem to have lost their feel for what excites customers. Meanwhile, competitors have surged into the trend for organic and natural foods.

Groceries offer notoriously thin margin and are difficult to deliver economically. Amazon has no peer in its skill to make things easier for customers. Walmart has the lead on Amazon in the groceries battle. Whole Foods changes that balance.

Can Amazon make groceries less troublesome for customers? Advantage, Amazon.

Test Three: Share the benefits with the customer

The acquired customer always feels bumps during mergers, usually caused by cost-saving programs. Shareholders love the cost savings. Customers hate the irritating bumps. Keep customers by sharing some of those savings in the form of convenience, selection or prices.

Whole Foods is high-end enough that late night comedians use it as a punchline. Their customers may be very sensitive to changes.

Amazon Prime Video is an example of adding more value for the same price. Prime members access movies and TV shows for no added cost. It keeps customers who might be wooed away.

Can Amazon make Whole Foods customers feel wanted? Advantage, Amazon.

When you get the itch to solve your problems by buying another company—or by being bought—pause for a moment. Consider how to protect the smaller partner. Plan how to fix what troubles your customer. Build in a way to split the merger benefits with your customer.

The right answers keep you from losing the game.


Add The Tatham Group on LinkedIn and connect with us on Twitter @TathamGroup for more tips, tricks and insights.