The news has been filled with stories about Amazon buying Whole Foods, what might happen, and what did happen. I liked the pictures in the Wall Street Journal showing the price of bananas before and after the deal closed.
Amazon did something counter-intuitive, they lowered prices (supposedly on about 100 regular items, like bananas). One of my favorite stories of how a buyer fixed a company is about when he raised prices about 25%, because he knew the company was severely under market (and no customers left or even complained).
Most new owners look for fat to trim and there’s often a lot there. It’s just like all the storage areas in our homes. After years and years, we suddenly realize we can’t navigate through the attic or closets because there’s just so much stuff. A lot of businesses build up expenses and don’t notice if there are duplicate services, what they have is overpriced, etc.
Amazon’s strategy will no doubt work. They’ll get people in the stores because now they’re competitive on the things we always buy (the Seattle Times just did a comparison on prices for common and not-so-common items between Whole Foods and other stores). Once their people will buy other things because it’s easier and cheaper to pay a little more versus traveling somewhere else to save 43¢ per pound.
The best strategy is to get a customer because if you do what you’re supposed to do you’ll keep them. And, all the studies I’ve seen say it’s 6-10 times more expensive to get a new customer versus doing more business with an existing customer.
“We will not make the same old mistakes. WE will make our own.” Henry Kissinger
