Healthy living is big business. Very big business.
Which is why the proverbial 800 lb gorilla just reached for the biggest ripest bunch of organic bananas on the tree.
Amazon’s surprise move to acquire the Whole Foods grocery chain for well over $13 billion set the business and financial world aflutter last Friday, with predictions and speculations as to the motives and the potential impact of the merger.
Analysts quickly pointed out that the acquisition will instantly transform the online retail giant into a brick-and-mortar behemoth–one that threatens the viability of all other grocery chains including biggies like Walmart and Kroger.
In an insightful piece on the CNBC website, Marcus Lemonis astutely points out that the Amazon – Whole Foods merger will shake the entire business landscape. That’s because Amazon is rewriting the basic business playbook. It seems to have intention of becoming profitable. Though many of its business units operate profitably, the company has never turned a net profit and–at least for the foreseeable future–shows no sign of trying to do so.
Growth Over Profit
While most big corporations focus on generating shareholder dividends, and sequestering cash that must be tax-sheltered overseas, Lemonis points out that Amazon’s core strategy is focused on growing its size and its reach, rather than pumping up its profit margin.
Simply put, Amazon dominates markets by offering convenience and driving retail prices down. Wall Street’s fortune-tellers predict that Whole Foods customers will likely see price reductions in the store aisles once the merger is transacted. In the process, Amazon will put downward price pressure on everyone from from artisanal yogurt producers to herbal medicine makers.
Rather than accumulating cash and issuing dividends, Amazon recirculates its revenue into new conquests—like producing its own original binge-worthy TV serials or marketing its own line of home electronics.
Amazon makes it more and more difficult for its competitors to stay in the game. It’s hard compete when you’re under pressure to show your shareholders a profit but your main competitor does not.
What’s often overlooked in all the financial prognosticating is the fact that this grand drama is being played out in the arena of healthful living.
From Granola to Payola
Given how big the Whole Foods stores have become, its easy to forget that the chain emerged from the once-marginalized “health food” movement. Whole Foods began nearly 40 years ago as a single independent store in Austin, TX, and grew by aggregating (or overtaking) other indie shops.
The products and the values people seek in Whole Foods—organic, fair-trade, allergen-free, grass-fed, locally-grown, non-GMO, drug-free—were once ridiculed or dismissed outrightly by mainstream American culture. Some of them still are.
And yet the “crunchy granola” movement that began with hippies, back-to-the-landers, and advocates of clean living from a variety of religious denominations, has grown to become one of the biggest and most dynamic forces in the US economy.
That’s cause for both celebration and concern.
On the one hand, its a very positive sign that so many people are seeking healthy alternatives to highly-processed, toxin-laden conventional foods (whether or not everything in a Whole Foods store is truly an alternative is another question). And down-pressure on premium-price produce could make healthful living more accessible to millions of cash-strapped Americans who currently avoid stores like Whole Foods. Who wouldn’t welcome that?
On the other, the rapid commodification of healthy foods and related products could make it all but impossible for smaller manufacturers– the nurturers of innovation and guardians of the movement’s core values–to stay in business. That’s a serious potential risk.
The Whole Foods acquisition is not Amazon’s only recent foray into holistic living. In March, the company launched its own dietary supplement line. The Elements brand boasts a quasi-pharma look and feel, and an appeal based on purity, traceabilit, and transparency similar to the core values promoted by practitioner-only nutraceutical brands.
Thing is, Amazon’s in-house products sell direct-to-consumer at less than half the price of most practitioner-only products in the same categories. As it has done in practically every other industry, Amazon’s offerings will make it harder for practitioner-only nutraceutical companies to justify their higher prices.
It remains to be seen how Amazon’s influence affects the healthy living and holistic mediicine movement. But anything that big certainly should not be ignored. One thing is certain: the economy’s biggest gorillas are certainly not ignoring us!