Two months ago, I wrote about the potential impact of the Amazon purchase of Whole Foods on grocery prices. Both here and in the Boston Globe, I hoped and predicted that Amazon would use its famed distribution network to drive down prices on the healthy and organic foodstuffs that made Whole Foods famous.
I’m happy to say that I was right. Today, on Day 1 of Amazon’s official ownership of Whole Foods, Americans got to see the first tangible impacts of Amazon ownership and, as predicted, it was lower prices. As noted by journalists, the chain once derided as Whole Paycheck should now be referred to as “3/4 Paycheck” given deep discounts averaging 25% on a wide range of products ranging from bananas to butter.
Though terrifying for Amazon’s competitors such as Kroger, Walmart and Costco, Amazon’s major foray into brick-and-mortar groceries may end up being a boon for consumers – at least in the short term. It’s no secret that Amazon retains its web startup mentality in aggressively promoting loss leaders to drive out competition. And increased competition will better serve consumers who have been squeezed by recovering inflation on food prices.
Soon, Amazon intends to install more of its Amazon lockers into Whole Foods locations, thereby facilitating deliveries for goods bought on the Amazon website while also increasing foot traffic to its stores. Analysts also speculate that Amazon’s grocery delivery service, Amazon Fresh, may get a much-needed shot in the arm with goods from Whole Foods. The corporate synergy of this deal is palpable – and just beginning.
This makes people nervous. Already, journalists and think tanks have sounded alarms about how Amazon’s growing power may make it a monopoly. They argue that Amazon is an antitrust problem given that it already captures nearly half of U.S. online sales, is the leader in providing cloud computing through Amazon Web Services and has a robust marketing and logistics division.
To bolster their point, it is true that Americans can now spend a large part of their day using Amazon services without even knowing it. You could wake up on a Saturday, go to Whole Foods for groceries, order supplies off Amazon, read a book with your Kindle, watch TV on Netflix (powered by Amazon Web Services) or catch a movie on Amazon Prime Video. All of your needs met by Jeff Bezos and company.
It is understandable that this makes people uneasy. While America has faced more pervasive monopolies, Amazon’s reach is more insidious given that it reaches, and controls, much of our daily lives.
But when it comes to food, does any of this matter? I would argue, no.
A key responsibility of any government or society is provide a secure food supply to everyone. And in this regard, America has failed miserably. As noted in my previous piece, 2.3 million Americans live in extreme food deserts – areas more than one mile from their nearest supermarket and with no access to a vehicle. And even where food deserts do not exist, eating healthy has progressively become more expensive than eating junk food.
Much of this increase in healthy food prices can be attributed to the increasingly niche treatment of fresh food. Tack the label of “superfood” on a product and the price seems to mysteriously skyrocket. A key example is kale, a food blogger favorite, where heightened demand has led to annual price increases of more than 30%.
With Amazon’s purchase of Whole Foods driving prices on fresh foods down in-store, and perhaps online, we might be on the verge of the democratization of fresh and healthy foods. And that’s a good thing.
It’s time to stop treating healthy eating as a choice. The truth is that healthy eating has gotten too expensive and too difficult for those in lower income brackets. And to blame lower-income Americans for failing to eat right, when junk food is fast and ridiculously inexpensive, smacks of out-of-touch elitism.
Instead of fearing the monopoly implications of Amazon-owned Whole Foods, the Trump administration should view it as an opportunity for public-private partnership. With grocery prices likely to fall in the near to medium future, the administration should be looking to expand the scope of SNAP (formerly known as food stamps) into direct food delivery so that low-income families can get fresh foods delivered directly to their homes.
Such programs are not new but they previously faced three major problems: (1) technological, (2) marketing and (3) cost.
Luckily, the technological hurdles to using SNAP online seems to finally have been dealt with. But the other two questions of marketing and cost remained in the pre-Amazon Whole Foods world. However, with Amazon’s new pricing and renewed commitment to the food business and marketing prowess, such a program could finally take off and deal with the issue of food deserts once and for all.
Instead of relying on Amazon or its competitors to figure out the online SNAP model, government should coordinate the process and streamline the required elements in a general Request for Proposals, including pricing controls. Doing so should alleviate concerns about the government enabling the creation of an Amazon monopoly while ensuring that lower-income Americans can get healthy food at reasonable prices.
If, at the end, only Amazon can comply with the RFP then so be it. More Americans desperately need healthy food, whatever the source.
Jason Chung is currently the senior researcher and attorney at NYU Sports and Society, in New York. He tweets at @ChungSports.
Great information, thanks for sharing!
Hmm. Just loved the good topic of discussion.
Jason, I know little about military contracting but that army contract–you cited below–for milk and dairy goods with Mayfield Dairy in Georgia for three years for 17 million dollars seems a little loosy goosy. It sounds to me as if they are saying: “Provide the Army with your dairy stuff for three years and we will pay you a minimum of @$17,700,000”. There are no volumes mentioned. There is nothing mentioning how much per unit, your charges are to be, or the quality expected.
It’s like saying. “Hey, Mayfield Dairy, We like you guys; serve our needs for three years and we will pay you a minimum of 17 million bucks.”….no matter the volume….no matter the turn-around times….no matter the quality….no matter if our service members stop using your milk or butter…no matter what your profits are…
If I am interpreting this correctly, you don’t really want contracts between the government and its SNAP program and food sellers to look like this, do you ???
A fixed-price contract is far from loosy goosy. As defined by the US government acquisitions website (https://www.acquisition.gov/far/html/Subpart%2016_2.html):
A firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of the contractor’s cost experience in performing the contract. This contract type places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss. It provides maximum incentive for the contractor to control costs and perform effectively and imposes a minimum administrative burden upon the contracting parties. The contracting officer may use a firm-fixed-price contract in conjunction with an award-fee incentive (see 16.404) and performance or delivery incentives (see 16.402-2 and 16.402-3) when the award fee or incentive is based solely on factors other than cost. The contract type remains firm-fixed-price when used with these incentives.
Economic price adjustments are allowed only in specified contingencies and only if the government agrees to these price adjustments prior to contract formation.:
(1) Adjustments based on established prices. These price adjustments are based on increases or decreases from an agreed-upon level in published or otherwise established prices of specific items or the contract end items.
(2) Adjustments based on actual costs of labor or material. These price adjustments are based on increases or decreases in specified costs of labor or material that the contractor actually experiences during contract performance.
(3) Adjustments based on cost indexes of labor or material. These price adjustments are based on increases or decreases in labor or material cost standards or indexes that are specifically identified in the contract.
(b) The contracting officer may use a fixed-price contract with economic price adjustment in conjunction with an award-fee incentive (see 16.404) and performance or delivery incentives (see 16.402-2 and 16.402-3) when the award fee or incentive is based solely on factors other than cost. The contract type remains fixed-price with economic price adjustment when used with these incentives.
Normally, the government will set a narrow set of conditions on what qualifies for economic price adjustments (e.g. inflation, exchange rates).
If you want additional information, you can consult here:
It is not about how the lawyers write the contract but what goes on in between the buyer and the seller. The VA has a contract with its soldiers. You must be very pleased with the care given.
“A key responsibility of any government or society is provide a secure food supply to everyone. And in this regard, America has failed miserably.”
Simply overgeneralized rubbish. The main problem is personal choice. I have more than enough money to pay for the best diet possible along with availability yet my choices get in the way of the best of diets.
Additionally, though some foods have had their prices lowered by Whole Foods I haven’t noted any drop in pricing in the vast bulk of their products. In fact I have noted some to have risen. The reality is that fruits and vegetables are expensive in their creation, delivery and storage and in the end are as expensive as can be if calories is what is looked at.
Towards the end of this piece of work there is a somewhat ambigous statement that ends in “…including pricing controls.” That sort of tells us the lack of economic understanding the author has.
I’m sorry that your choices get in the way of your diet but you do realize that those with limited incomes have limited choices right?
Also, society and the government necessary to run it started in response to the collection and distribution of food and other goods and governments have been toppled because of insecure food supply. Of course, America isn’t a Soviet bloc state with empty shelves but all we’ve done is give lower-income groups empty calories instead of healthy food and, in that very important sense, America has failed. It has also shot itself in the food as it comes to increased healthcare costs down the line.
As for your shot at my economic understanding, I’d like to point out the fact that pricing controls in the form of fixed fees are already the norm for many competitive procurement RFPs on staples like milk. If you don’t believe me, see this DoD release for yourself (https://www.defense.gov/News/Contracts/Contract-View/Article/1006508/). There’s no reason that such a model for a federal program like SNAP couldn’t also exist.
“those with limited incomes have limited choices right?”
We all have to bear the results of our choices, but you want to make less afluent people bear the poor choices of others. That type of behavior can lead to an accusation that you are a nuisance and complicating the lives of hardworking families that are already having trouble getting by.
“governments have been toppled because of insecure food supply.”
Of course, and that was part of the problem in the Soviet Union which applauded your type of government intervention. Understand, however, I not asking for the rug to be pulled out of the social safety net for those in need, only that part of the safety net that you seem to be asking for in your missive above.
“all we’ve done is give lower-income groups empty calories instead of healthy food”
That is a bit nuts. Have you ever watched people present their food stamps and look at what some of them buy? Perhaps you are a bit too isolated in where and how you live and haven’t seen what food stamps are used for in various locations.
That price controls exist in certain domains doesn’t make it right or good though it appears you assume it does. Jason, I think a good dose of reality would change a lot of your opinions, but I realize it would have to be a really good dose.
Well, you can have the kind of government intervention that Jason mentions without being the Soviet Union. Many countries in Europe, for example, are eagerly promoting healthy foods, even to small children at schools. It is obvious that the majority of people would prefer the taste of a pizza or of a hamburger than of a salad – that is why it is important that people understand that healthy food is important for them and that the government makes sure that its citizens are able to afford this kind of food.
How about a meaningful discount, usable at only one designated store (as in urban or rural) visit per week, applied to fresh 1% Milk, fruit or vegetables (unprepared) for anyone using food stamps?
How about stop subsidizing corn and start subsidizing fresh fruits and vegetables. To pay for this start taxing processed calories, fat, sugar – easy to do with bar codes. Small tax, not too onerous.
pj, I’m dubious about limiting consumer choice in freely spending their SNAP benefits. It takes away their bargaining power. Now, if the discounts were arranged and administered by the government in the form of weekly deliveries, I think that’s a bit different as the bargaining agent would be the government not the individual holder of SNAP benefits.
Peter, I’m all for that. Excise taxes are way too low on sugar and processed foods and we need to get more pigovian.
“It takes away their bargaining power.”
Jason, hearing you say that made me laugh so hard I now have rib pain. Thanks for the laugh. Then you made me laugh again almost cracking a rib when you said that bargaining could be improved since ,”the bargaining agent would be the government not the individual ”
At this point its hard for me to tell if your statements are based upon pure naivete or pure sarcsm.
I totally believe that Amazon is a huge player. The way they are doing everything here is visibly a part of a great business plan. I would say that I can rely on Amazon’s Monopoly on Healthy Food that can make You Grow better, but, I have questions.
1). Are we considering that we need to still have a decent quality check of all the food that we buy?
2). Can we blindly rely on the reasonability of Price, which Amazon is offering food at?
3). What can be done in order to make it even better?
I would love to receive replies to this comment. Thanks in advance, if you have answers.
1) Food safety isn’t a major concern at most American supermarkets. Regardless of contemporary storylines, America is a first world country.
2) If it’s healthy and cheap, why should those that need it care? Regulations should take care of food safety, consumers will monitor quality and competition will arise if Amazon rests on its laurels too long.
3) Remains to be seen but we need to deal with the issue of actually valuing healthy food in the US. That should come in the form of reforms to government subsidies on the production side and how SNAP benefits are distributed to lower-income Americans on the administrative side.
For perspective, you need to understand that Amazon lowered prices on only about 100 items at Whole Foods. The typical full service supermarket stocks roughly 20,000 SKU’s, sometimes more. This move is about trying to create a lower price image but anyone who does all of their food shopping at Whole Foods will likely see only minimal savings upon checkout.
It’s also important to note that healthy food costs roughly 12 times as much per calorie as unhealthy (junk) food. So, even if healthy food is readily available with or without a vehicle to go shop for it, cost will continue to be a huge impediment especially for lower income people.
The biggest problem with Amazon as a competitor is that they may not be rational. Rational competitors try to operate their business so that they earn enough profit to at least cover their cost of capital. While Amazon Web Services is doing extremely well, it’s retail business is minimally profitable at best. Jeff Bezos seems more interested in trying to be a visionary than in earning a satisfactory return for his investors. Investors have been extremely patient so far but their patience is not infinite.
Barry, absolutely. Amazon can and should do more. But, to be far, it was Day 1 of their ownership. I expect them to aggressively drive down costs on more SKUs – including ones that matter.
Like you said, healthy food is far too expensive and some of that is in the nature of the product but much of it rests in government subsidies that don’t make sense. Amazon as a player in healthy foods should do a lot to ensure that subsidies are taken away from over-incentivized industries to healthier staples and greens for consumers.
Agreed that shareholders’ patience with Bezos may not be infinite but he’s managed to convinced his major stakeholders that market share and penetration are more important that record-breaking profits (though retail sales have finally shown profits in most recent quarters). I think this buys him more time and if it ends up being a boon for consumers, so be it.
Nutrition as a Common Good for a community should follow the same qualities attributed to any of its “benefits and obligations.” Community by community, these are: equitably available, ecologically accessible, justly efficient and reliably effective. So, the question is: will the Amazon folks offer a competitor to the Walmart folks to serve the inner city and rural communities to improve their Common Good with equitably available and ecologically accessible fresh fruit and vegetables? Corporate responsibility, I wonder!
“Corporate responsibility, I wonder!”
I wonder too. When it comes to our food system, the driving down of supplier profits (efficiency?) can produce terrible consequences. Animals that give their lives so we can eat well (usually too much) can be raised in inhumane conditions in an effort to squeeze out every last calorie at least cost.
For me there is no Whole Foods close, but I am an Amazon Prime member. I choose to shop at the local small chain whole food supplier (Weaver) that sources locally when possible and inspects the suppliers so they comply with the ethics agreement.
I do buy eggs at Walmart, but they are from a “Certified Humane” supplier, which actually has better animal husbandry than the local chicken farmer who sells to Weaver.
Equitability and ecology is a secondary concern at the moment. Right now, we must first get healthy food to more people at a reasonable cost.