Is Whole Foods beginning to see the start of “the Amazon Effect”?
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Is Whole Foods beginning to see the start of “the Amazon Effect”?

When Amazon bought Whole Foods – by far the biggest component of its brick-and-mortar retail offering, and the company’s first major expansion into the grocery space – expectations were high. Shares in some of the grocer’s rivals (Kroger, Sprouts Farmers Market, etc.) bombed as investors readied themselves for yet another example of what has become known as “the Amazon Effect” – sudden and massive disruption of an entire industry. Then… well, nothing seemed to happen, really. Things just went on as usual.

Amazon’s share price has ascended dramatically so far this year

graph 2908 whole foods

SOURCE: Yahoo Finance

It was Bill Gates who coined the following piece of wisdom: “Most people overestimate what they can do in one year and underestimate what they can do in ten years.” There’s a sense in which that is true of how people think think about Amazon, too. Investors, perhaps, have forgotten the years of diligence and price slashing that led to Amazon’s first big disruption in the 1990s. Back then, the company seemed freakishly averse to making money, and a very large proportion of the market was dubious about Amazon’s credibility as a stock.

The point is, even for a company with Amazon’s history and bank balance, disrupting entire industries rarely happens overnight. But, if you’re willing to wait it out, the eventual outcome can be much greater than you ever imagined. Amazon itself is the best example of this – people who bought the stock in 2000 hoping for great short-term returns were disappointed. But the company’s long-term growth has been phenomenal. Since listing publicly, Amazon’s share price has appreciated by 49,049.69%! The company has, literally, made fortunes for its more prescient investors (and, of course, if you’re a long-term investor into our Global Trends Ecommerce Fund, you probably don’t need to be told this, as it has delivered outsize returns to you, too!)

Lets get back to the point: Amazon’s purchase of Whole Foods didn’t upend the entire industry overnight. Investors were naïve to think it would, and shouldn’t be disheartened by the reality. Because, when you look at the numbers, it seems like Amazon is making some pretty impressive headway with the chain.

When Amazon bought Whole Foods, it was under siege from its competitors. Originally billed as an exclusive and upmarket store for middle-class foodies, Whole Foods suffered when many of the factors it used to differentiate itself (organic produce, and health food, particularly) went mainstream. At the time of its acquisition, Whole Foods was losing market share.

Now, a year on, the situation’s changed. In more than 100 locations in the United States, Whole Foods has been seeing footfall in store rise at the expense of Trader Joe’s, Walgreen, and Dollar Tree Stores. What’s more, the number of shoppers who visited Whole Foods “at least six times in the past year” has risen to 11% this month from 9% a year ago. These figures come from Sense360, a mobile location tracker in Los Angeles. Perhaps the best way to sum up what this means comes from the company’s CEO, Eli Portnoy. He said:

“We’re at the very beginning stages, and these things take time. These findings show there will be an impact.”

Are we witnessing the beginning of yet another Amazon Effect?

Disclosure

Dominion holds Amazon in its Global Trends Ecommerce Fund.


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