Bezos: “Alexa, buy me something from Whole Foods”
Alexa: “Buying Whole Foods”
— Jeff Lewis (@ChicagoPhotoSho) on Twitter
When local small-business success story Pet Food Express wanted to open in a blighted, long-vacant building on Lombard Street, pet stores as far away as Pacifica formed a coalition to stop them. At community meetings, owner after owner talked about the adverse effect a “chain” would have on their livelihood, but what struck me was that not one of them mentioned the elephant in the room — online sales — and in particular the biggest elephant of them all, Amazon.com.
In 1995, 31-year-old Jeff Bezos realized that a year after the first browser appeared, the Internet was growing at an annual rate of 2,300 percent. When Bezos launched Amazon, 16 million people were online. In 2017, that number is more than 3.6 billion. Bezos had one goal in mind: Grow fast and grow big. He almost arbitrarily settled on selling books. That year, Americans bought nearly $20 billion worth of books, with Barnes & Noble and Borders Group claiming over a quarter of the market, followed by independent shops eking out a fifth of the sales, with supermarkets, book clubs, and others taking the crumbs.
Perhaps Bezos’s smartest move was his ability to use to his great advantage a 1992 Supreme Court ruling (Quill Corp. v. North Dakota), which exempted retailers from charging sales tax in states without a physical presence. For years, he avoided collecting hundreds of millions of dollars, which helped Amazon put a large nail in the book business coffin. Two decades ago there were 4,000 independent bookstores in the United States; today, fewer than half of those remain. Like the cartoon where the small fish is eaten by the medium fish and the medium fish is swallowed by a shark, the two chains responsible in part for the demise of independents saw Amazon take a near-lethal bite: Borders declared bankruptcy in 2011 and Barnes & Noble has closed thousands of stores.
Today, Amazon sells everything on the planet, usually cheaper than brick and mortar stores and, if you’re a Prime member, with free shipping. I’d love to say I always support the small local business, but I can’t because, like most Americans, I have an Amazon addiction. Sometimes the stores are at fault, like when I went to a local hardware store to buy an arbor for my garden and the clerk stared blankly at me and said, “We get those in March and they’re sold out.” I was startled. “Isn’t that a summer item?” She shrugged her shoulders. “We get them in March…” So I logged on to AmazonSmile (a site where Amazon makes a donation to your favorite charity for every purchase) and found about 50 different arbors to choose from, with free delivery to my door, of course.
Then there’s the convenience factor. When I wanted to make mashed potatoes the next day for a recipe I was testing, I realized my peeler was too dull to do the job. It was 100 degrees and I didn’t feel like braving the outdoors, so I ordered one on Amazon for $5.95 and it was delivered free the next morning.
The only thing I don’t order on Amazon is groceries — they have them, but I like to pick out my own produce. Bezos, realizing this chink in the armor of his world domination plan, announced in June that Amazon would buy Whole Foods for $13.7 billion. Turns out just 1.4 percent of groceries are purchased online, according to Yahoo Finance. If approved, it would be Amazon’s largest acquisition ever and give it a huge offline footprint — something that should scare the bejesus out of mom and pop grocers and large chains like Safeway alike. One of the strongest weapons in Amazon’s arsenal is that they don’t care if they lose money, because they have it to lose. Until recently, Amazon had never shown a profit, yet analysts believed in Bezos so much the stock hit $1,000 per share, making Bezos the second-richest person in the world after Bill Gates, with a net worth in the $75 billion range.
Now California congressman Ro Khanna says the deal deserves closer examination. “The main problem is it is going to hurt local grocery stores,” Khanna, whose district includes much of Silicon Valley, said on CNBC’s Squawk on the Street, because they can “engage in low-cost pricing and it is also going to put pressure on wages.”
He pointed to Walmart, which has a 22 percent share of the American grocery business, and the negative impact it’s had on regional stores. Amazon and Whole Foods could force them to reduce wages to keep up, which could stifle the battle for a $15 minimum wage. Perhaps even more frightening is Amazon’s ability to replace cashiers with hundreds of surveillance sensors that can identify items and bill a customer’s account, something they’re already doing at an Amazon-owned grocery store in Seattle.
While Khanna’s desire to scrutinize the Amazon-Whole Foods deal looks good on paper, it may be too little too late. Amazon has been allowed to grow unfettered for years, taking out brick-and-mortar retailers with broad strokes of its mammoth trunk. The harsh reality is that you can’t push the elephant out of the room when it’s already too big to fit through the door.