Will Amazon’s Whole Foods deal go the same way as L’Oréal and Body Shop?

Professor Tanusree Jain, Trinity Business school, Council on Business & Society

Prof. Tanusree Jain

Prof. Tanusree Jain of Trinity Business School takes a sharp look at the Amazon takeover of Whole Foods and how two apparently conflicting corporate visions are dealing with the clash.

 

With kind acknowledgements to The Conversation

CSR, leadership, social enterprise, management, philanthropy, diversity, gender equity, healthcare, sustainability, ethics, industrial relations, healthcare, employee wellbeing, Council on Business & Society, Global Voice magazine, ESSEC Business school, FGV-EAESP, Trinity College Dublin Business School, Keio Business School, Warwick Business School, School of Management Fudan University, Tom Gamble, Tanusree Jain

Sandwiched?

In late 2017, online retail giant Amazon made a decisive move into food retail. The acquisition of US grocer Whole Foods, a pioneer in organic, healthy food shopping for well-off consumers, brought together two businesses with contrasting reputations. This type of scenario is nothing new. Neither the problems such a takeover brings with it.

Amazon’s mission is to build a place where people can find “anything they might want to buy online”. In the Whole Foods mission statement, however, it promises to “not sell just anything” but to deliver the highest quality that encompasses the greater good. We perhaps shouldn’t judge a deal by highlighting that the corporate PR seems to be at odds, but this discrepancy does raise some profound questions about the purpose of a business and how that purpose is accomplished.

For years, Amazon has been criticised for its business practices. A burnout-inducing work culture, limited focus on recycling and a lack of transparency on sustainability reporting have all come under fire. Compare that to Whole Foods’ value-based culture of caring for worker communities, adoption of responsible recycling and its foray into solar energy. It feels like a strange marriage.

Trojan horse

CSR, leadership, social enterprise, management, philanthropy, diversity, gender equity, healthcare, sustainability, ethics, industrial relations, healthcare, employee wellbeing, Council on Business & Society, Global Voice magazine, ESSEC Business school, FGV-EAESP, Trinity College Dublin Business School, Keio Business School, Warwick Business School, School of Management Fudan University, Tom Gamble, Tanusree Jain

Off-the-shelf solutions aren’t always useful

In fact, it does bring to mind 2006, when L’Oréal, the corporate beauty giant with a deeply questionable animal testing record, acquired Body Shop, the socially conscious beauty company known for its ethical products and friendly environmental practices. The deal was made through an agreed buyout with Anita Roddick, the founder of Body Shop. Agreements were made that Body Shop would continue to run independently, and Roddick was quoted as saying Body Shop could act as “a Trojan horse” and positively influence the way L’Oréal did business.

However, over time, the lack of a cultural fit between the two companies, and growing competition from other ethical beauty brands, led to a decline in Body Shop’s appeal. Sales fell, as did operating profits and market share. Now L’Oréal is looking to sell Body Shop a decade after a deal that shocked many. Clearly, there is more to an acquisition than just potential financial rewards, and that mismatch of ideology and purpose can lead to reduced value for investors themselves.

The Whole Foods deal has echoes of that Body Shop-L’Oréal story, but there are some important differences. Amazon has responded to criticisms over its sustainability credentials and signalled a positive shift by significantly expanding its sustainability team. It has also announced a series of goals in this direction, ranging from solar-energy-powered fulfilment centres to construction of its largest wind farm. However, new evidence suggests that parent-company Amazon, in a bid to reduce the prices Whole Foods offers customers, has cut ties with small, niche suppliers of foodstuff to deal with bigger, national brands. Announcements have also been made that Amazon is to acquire 2,000 or so small-sized supermarkets in which they hope to sell at a lower price than Whole Foods and under a different name.

Pressure off?

CSR, leadership, social enterprise, management, philanthropy, diversity, gender equity, healthcare, sustainability, ethics, industrial relations, healthcare, employee wellbeing, Council on Business & Society, Global Voice magazine, ESSEC Business school, FGV-EAESP, Trinity College Dublin Business School, Keio Business School, Warwick Business School, School of Management Fudan University, Tom Gamble, Tanusree Jain

It all boils down to purpose

But let’s not get carried away. Amazon is more than 20 years old, and remains a laggard in the sustainability movement. Its venture into renewables was not a matter of business philosophy, but was driven by market and competitor pressures and the push to align with the previous US administration’s stand on climate change. In contrast, Whole Foods has followed a mindful approach to sustainability, winning its first Green Power award from the US Environment Protection Agency (EPA) more than 13 years ago. With the Trump administration’s renewed focus on coal, the US withdrawal from the Paris Climate Agreement, and overhaul of the EPA, the pressure on Amazon to progressively adopt green tech may ease.

It is also hard to see how Amazon will handle the strong views of John Mackey, CEO of Whole Foods and a proponent of conscious capitalism. He has been quoted as saying: Business (in America) is about a bunch of greedy bastards running around exploiting people, screwing their customers, taking advantage of their employees, dumping their toxic waste in the environment, acting like sociopaths.

The Whole Foods approach is to create long-term value for its owners, shoppers, workers, suppliers and local residents. What marks out a so-called “purposeful” business is its ability to stay true to that mission, rather than drifting inexorably towards life as an engine of growth for investors through continuous expansion.

Now, Amazon has focused on long-term growth and is a customer-centric company, but its attitude towards workers, communities and the environment has often been drastically different from that of Whole Foods, leading to the obvious question of how Whole Foods will be run within Amazon.

Misfits

CSR, leadership, social enterprise, management, philanthropy, diversity, gender equity, healthcare, sustainability, ethics, industrial relations, healthcare, employee wellbeing, Council on Business & Society, Global Voice magazine, ESSEC Business school, FGV-EAESP, Trinity College Dublin Business School, Keio Business School, Warwick Business School, School of Management Fudan University, Tom Gamble, Tanusree Jain

Finding the right misfit

The fear must be that the rationale for the Whole Foods acquisition is to make cost cuts and secure a good outcome for investors. There has been much chat in the media about Amazon’s warehouse robots being let loose on Whole Foods, at the expense of jobs and this seems to fit with Amazon’s traditional price war strategy – reaching out to people’s wallets more than their hearts and concerns for sustainability. The door is already ajar. Pressure from investors has already led to an overhaul of the Whole Foods’ board of directors, where long-standing conscious capitalism supporters have been replaced by corporate leaders interested in market growth and investor wealth maximisation. Amazon workers too, have been hired to work in Whole Foods, including a senior compensation manager, and this has had the typical post-merger effect of raising concerns among Whole Foods employees to the extent that there has been a call to unionise. How Amazon reacts to that remains to be seen.

Ultimately, there is clear business potential for Amazon, but an equally clear lesson from past acquisitions where a poor cultural fit has proved detrimental for everyone involved and for the brand itself. Whole Foods has become synonymous with ethical consumption through its careful selection of vendors and products. Despite competition, it has an ardent following of ethical consumers.

There is a genuine risk that this acquisition will muddy the waters for Whole Foods shoppers. Will they be faced with shelves full of “anything” that can sell, rather than the benign niche products they were used to? Nearly two years down the road, how leadership works in this post-acquisition period will be key: how and why decisions are made, and by whom, will dictate whether the upscale grocer loses its claim to conscious capitalism. The deal could be a success, but if lessons aren’t learnt, Whole Foods could even go the same way as the Body Shop, and end up on the auction block in a decade’s time.

Useful links:

Website: www.council-business-society.org

Twitter: @The_CoBS

The members of the Council on Business & Society

Discover Responsible Business and Leadership. Download Global Voice, the Council’s quarterly eMagazine:

The Council on Business & Society Global Alliance is an international alliance between six of the world’s leading business schools and an organiser of Forums focusing on issues at the crossroads of business and society – The Council Community helps bring together business leaders, academics, policy-makers, students and journalists from around the world. Follow us on Twitter @_The_CoBS . Visit the Council’s website for a host of information, learning opportunities, and free downloads.  

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s