As Whole Foods Contends With Foot-Traffic Shortfalls, Where Can It Go From Here?

A lot has happened since Amazon acquired Whole Foods Market in 2017, including the debut and subsequent rollout of nearly 30 Amazon Fresh stores, the launch of Amazon’s Just Walk Out and Amazon One shopping experiences, and the integration of those tech advances into Whole Foods stores—not to mention, a two-year-plus pandemic. With several of these milestones owned by the buyer vs. the bought, one question begs to be asked: How is Whole Foods, with the lingering moniker of “Whole Paycheck,” faring? Not necessarily well, according to foot-traffic data firm Placer.ai.

In a recent report, "Whole Foods’ Journey Since the Amazon Deal," Los Altos, Calif.-based Placer.ai states that visits to Whole Foods have not fully recovered from COVID-19. After its acquisition by Amazon but before the pandemic, Whole Foods saw a steady stream of elevated foot traffic: Compared with a July 2017 baseline (the Amazon deal closed that August), customer visits to Whole Foods were consistently up between 10% and 20% until March 2020, when the pandemic hit, Placer.ai found. In April 2020, visits plummeted nearly 40% compared to the July 17 baseline, and they were still down 11.4% as of February 2022. WGB chatted with Ethan Chernofsky, VP of marketing for Placer.ai, to better understand the current dynamics for Whole Foods, how the grocer can move forward and how important the in-store experience can be for a retailer.

Kristina Hurtig: Visits to Whole Foods dropped significantly during the pandemic and have not fully recovered since. What’s at play here?

Ethan Chernofsky: Are there issues that Whole Foods needs to deal with? 100%. What you've seen, though, in the pandemic is the challenge of being like 6’2” and sitting in coach on an airplane. It's amazing to be 6’2” 90% of the time—you're better at basketball, you're taller; it's lovely, right? But when you're sitting in a cramped airplane seat, that stinks, and I think that's what's happened with COVID. Whole Foods is not a value-oriented grocer. They're more upmarket; they’re heavily oriented toward urban areas. And those are two things that have been really working against them within the pandemic environment. So while grocery as a whole has seen this really strong period, Whole Foods has lagged behind because they're oriented differently. Where that is kind of their secret sauce in a quote-unquote normal period, those elements have worked against them in the last few years. So when we look at the Whole Foods pandemic performance, that context is really important.  

Do you think it has anything to do with Amazon ramping up its Amazon Fresh stores, or is there not enough overlap in audiences for that to make a meaningful difference?

You kind of touch on the most important issue here. We view the Amazon purchase of Whole Foods in a very similar light as kind of Walmart's purchase of Jet, in the sense that Jet was not the most successful acquisition ever on its own. Walmart wasn't necessarily the perfect steward for Jet and its potential, but Walmart became amazing in e-commerce as a result of the acquisition, the influx of talent experience and expertise. And I think something very similar is happening with Amazon with a potential greater upside.

Whole Foods was their first huge play into brick-and-mortar retail. And I think there are a lot of very fair arguments about whether Whole Foods has been maximized, whether the Amazon approach fits in an ideal way with what Whole Foods does at its core. But I do think Amazon has learned something really tremendous about what brick-and-mortar grocery looks like. And as a result, what you're seeing with Amazon Fresh and Amazon Go—these very authentic Amazon experiences, focused on convenience and value and speed and efficiency—I don't know if those are possible without having first had the Whole Foods experience.

One thing that is really important to remember about Amazon is that they are a technology company. And so their default is "test quickly, optimize, shift, make changes"—constantly be open to this flexibility and pivoting towards something better. And so I think what's interesting about Whole Foods is obviously there's still a lot of success with Whole Foods prepandemic, you know, in a normal environment. But even if the Amazon experience and the Whole Foods experience don't jibe perfectly, everything that they've launched since then I think is a better version of it because of the experience.

We just reported on the news that seven Whole Foods in Austin will now be offering Amazon One palm payment, and before that, in February, Amazon debuted its Just Walk Out tech at a Whole Foods in Washington, D.C. How do you think these tech advances will help or hurt Whole Foods, and will they be enough to bring customers back into stores?

Let's separate out the Amazon experiences across their kind of grocery portfolio. In an Amazon Go small format—a come-in, come out, get a few things experience—cashierless checkout is brilliant, makes a ton of sense, and I think is a really great part of what that audience is looking for. Get in, get out, get the things I need. When you start moving into Amazon Fresh and Whole Foods, I don’t know how difficult the experience is that this is the thing [that has shoppers saying], “Oh, well now I'll go there because I don't have to wait at the cashier line. And this thing is so much better.” I think it's one of these elements that is nice, [and] I'm sure will evolve and improve over time, but I don't think at the moment that it's the big difference-maker for how someone's choosing where to shop.

I think for the average customer, it's about: What's the quality of goods? How close is it to my house? Do I like the experience in the store of walking through the aisles? Do I find the things I need? And if they’re satisfying those elements, then that kind of cherry on top might be the technology. I think the technology that we're going to be talking about much more is the distribution, the ability to fulfill from stores, the buy online, pickup in-store.

Perhaps most of all, it's going to be about Amazon understanding where and when to deploy which technology. So in certain experiences, it's all about efficiency. In other experiences, it’s not about speed and efficiency, it's about quality and experience. Whole Foods classically was a more expensive grocer. It was a grocer that did a lot of damage with their prepared food. That's not just about speed. It's also about, how clean is it? How good does it look? Is this a place that feels like, “All right, I'll spend $2 more on asparagus”? That kind of piece is going to be really important. … Amazon Fresh is not targeting the Whole Foods market. Amazon Fresh is targeting that value market. And I think that's going to be where you really feel Amazon the way we know it and classically understand it. And I think we're going to see Whole Foods start to shift a little bit, definitely be technology-infused, definitely see the Amazon handprint, but see Whole Foods start to become more of what it was with this high-end, quote-unquote luxury grocery experience.

You talked a little bit about what Whole Foods does well—high-end and high-quality offerings—do you think that will be their strongest play going forward? Or do you think that there are other efforts they could be making?

I think for Whole Foods to succeed, it needs to decide who it wants to be. If it wants to be the version of itself that it was—very oriented towards higher-end products, really high-quality, very focused on kind of cutting-edge food, if that makes sense. They were having kale … when kale was the hot new thing [and] it wasn't everywhere else. And so I think if that's going to be your identity, then you need to orient yourself in that way. And it's less about convenience and it's less about kind of the technology that drives efficiency. If you're going to orient yourself toward efficiency and convenience, then it has to be much more about get in, get out, a smooth experience and very often, oriented toward value. So I do think Whole Foods as a single entity is going to have to make a choice about which ring it occupies. And I think if you look at the wider Amazon portfolio, it makes sense that it sees this kind of shift back to where it had been prior, because Amazon Fresh is such a powerful asset within that value lane, Amazon Go is such a strong player within that speed, in-and-out convenience lane, and I think that mix will be the most powerful combined.

Placer.ai’s recent report on Whole Foods noted that the grocer is doing well in delivery and online pickup. Is that enough to balance the lower traffic? Is there more Whole Foods could be doing with regard to these efforts?

What we've seen so far in the pandemic is the perfect scenario for online grocery. If you could design in a lab a scenario where online grocery would take off, it’s what we've seen in the last two years. And it certainly grew a lot compared to where it had been. There are estimates that online grocery was somewhere between 2% and 4% of the overall grocery puzzle, and now it's up 4% to 6%, and that's tremendous growth, but it's still a really small sliver of the overall pie. And so even if online grocery continues to grow at a really healthy pace—and it's not at the same pace that it was in the height of the pandemic—it is a complementary element. … Within the next decade … [grocers who] over-orient themselves towards online are going to miss out on the in-store experience, and that's what’s going to be the most important piece of the puzzle. I think online grocery is absolutely critical; it's such an important element. But we have this tendency to get excited by the new and to lose sight of the fact that the bulk of what's happening is still happening in locations. 

One of things that's so important … is when we go to the grocery store, there are certain things that look, if I could just have it ordered and dropped off at my house and it's done really simply through Amazon, I'm going to do it every time—you know, paper towels and, I don't know, plastic and napkins and stuff. I don't need to see [those items] myself to know that they're going to be OK. … But when it comes to my meat, when it comes to my produce, even when it comes to walking the aisles and figuring out what I'm going to make that week … I think we forget sometimes that the discovery, the experience of shopping is also about making these decisions on the fly and that's what makes it enjoyable. And I think we're proving with our actual visitation patterns that the experience is far more important to us than we realize.