The breathless quality of many of these critiques obscured the fact that the Amazon/Whole Foods merger is merely the latest chapter in a nearly fifty-year trend towards consolidation and vertical integration in the grocery industry. Moreover, it is a business logic that Whole Foods has itself employed to grow from a small Austin grocer to an international brand.
Wheedling a profit margin from the sale of goods is what drives corporations to buy competitors and/or to constantly open new locations or close others. This incentive is especially strong in the grocery industry, which posts comparatively low sector-wide profit margins (one to three percent per year, on average).
Wheedling a profit margin from the sale of goods is what drives corporations to buy competitors and/or to constantly open new locations or close others. This incentive is especially strong in the grocery industry, which posts comparatively low sector-wide profit margins (one to three percent per year, on average).
Beginning in the 1980s, America’s largest grocery stores began the decades-long process of gobbling up smaller regional grocers. In 1988, Walmart opened their first Supercenter, becoming the world’s largest grocer immediately; in that same year, Whole Foods Market added stores outside of Texas for the first time by purchasing New Orleans-based Whole Foods Company.
By 2016, only four grocery chains accounted for 36.9 percent of food and beverages sold in the U.S. While small by comparison, Whole Foods growth pattern closely mirrors that of its larger competitors. Whole Foods became a national brand by continuing to buy already established regional natural grocers: During the 1990s, Whole Foods acquired Wellspring Grocery (North Carolina), Bread & Circus (Massachusetts and Rhode Island), Mrs. Gooch’s Natural Foods Markets (Los Angeles), Bread of Life (Northern California), Fresh Fields Markets (East Coast and Midwest), Michigan’s Merchant of Vino, and Nature’s Heartland of Boston. While Whole Foods' marketing strategy was unique, it’s corporate growth strategy was not.
This brings us to that well-known phrase “economies of scale,” which refers to the per-unit cost savings gained by larger operations. According to one recent study,“ For larger chains, revenue per employee is about $150,000. For the smaller stores, it is about $130,000…In other words, the larger the store, the more gross revenue per employee.”
By 2016, only four grocery chains accounted for 36.9 percent of food and beverages sold in the U.S. While small by comparison, Whole Foods growth pattern closely mirrors that of its larger competitors. Whole Foods became a national brand by continuing to buy already established regional natural grocers: During the 1990s, Whole Foods acquired Wellspring Grocery (North Carolina), Bread & Circus (Massachusetts and Rhode Island), Mrs. Gooch’s Natural Foods Markets (Los Angeles), Bread of Life (Northern California), Fresh Fields Markets (East Coast and Midwest), Michigan’s Merchant of Vino, and Nature’s Heartland of Boston. While Whole Foods' marketing strategy was unique, it’s corporate growth strategy was not.
This brings us to that well-known phrase “economies of scale,” which refers to the per-unit cost savings gained by larger operations. According to one recent study,“ For larger chains, revenue per employee is about $150,000. For the smaller stores, it is about $130,000…In other words, the larger the store, the more gross revenue per employee.”
In short, gross revenue per employee is a key metric in understanding corporate mergers. “Labor saving” technology and e-commerce have added new dimensions to consolidation by driving gross-revenue per employee even higher. Amazon for instance, has been able to achieve 30% of Walmart’s yearly revenue with only 15% of its workforce. These trends are having a profound effect the retail economy’s ability to create broad-based prosperity.
Efforts to assuage concerns that Amazon will attempt to fundamentally alter Whole Foods’ corporate values usually begin by noting that the company will remain headquartered in its hometown of Austin, Texas. This is not wholly reassuring. Like Whole Foods, during the past three decades Austin has grown from a sleepy, beard-and-sandals burgh to a self-aware, wealthy, and ambitious city.
Efforts to assuage concerns that Amazon will attempt to fundamentally alter Whole Foods’ corporate values usually begin by noting that the company will remain headquartered in its hometown of Austin, Texas. This is not wholly reassuring. Like Whole Foods, during the past three decades Austin has grown from a sleepy, beard-and-sandals burgh to a self-aware, wealthy, and ambitious city.
Like Whole Foods, Austin’s rise can be attributed to its deftness at marketing itself to the world as a clean, healthy, environmentally friendly, and all-around cool place, yet one that bears the lamentable distinction of being the most economically segregated and one of least affordable cities in America.