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The Strategy Inside Everything

In each episode, we discuss events in pop-culture, business, fiction, sports - even politics to uncover the strategy behind the action.
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Mike Jones on Amazon, Whole Foods and Brand Culture

This conversation is all about the way brand culture is built up around a mission, and the single minded drive companies take, until they can't. Mike Jones of Resound Creative joins and makes many, many great observations about the two cultures and the output to consumers. 

 

Relevant Links: 

https://www.forbes.com/sites/jasonbloomberg/2017/06/23/amazons-whole-foods-strategy-its-not-what-you-think/#10abfc4da822

Episode Transcript: 

[00:00:00] Adam Pierno: All right, one? Okay, welcome back to The Strategy Inside Everything. I'm very excited. This conversation has been a long time coming. My guest today is someone I've "quasi" known for probably five or six years.

[00:00:17] Mike Jones: Yes.

[00:00:17] Adam: We've spent a lot of time "talking," but mostly 140 characters at a time on Twitter. So, just like John Burke, another Twitter acquaintance. So, I hope that you guys like what it sounds like when we actually talk in person. I have with me today the managing partner of Resound. His name is Mike Jones. How are you doing, Mike?

[00:00:37] Mike: I'm doing great, Adam. It's good to be here.

[00:00:38] Adam: Mike, tell me a little bit about Resound. I want the audience to just get a little bit familiar with who you are and what you guys are doing.

[00:00:45] Mike: Yes. We're a brand agency, like you mentioned, in Arizona. We have a core philosophy that we bring to all of our client engagements which is that every organization has a brand that can be remarkable.

[00:00:58] Adam: Yes, I really like that remarkable thought.

[00:01:00] Mike: Yes. So, we help them find their remarkableness, find the key attributes, and communicate those really, really well through their visuals and their verbal communications, so writing, design. We do a lot of website design involvement as a follow-up to that, but primarily, we're focused on that brand identity and really capturing what that is in a conceptual way so that the leadership can really embody it throughout their entire customer experience.

[00:01:29] Adam: Awesome. What are the standard sizes of your customers or does it totally vary?

[00:01:34] Mike: It varies a little bit but typically, we're working with small to medium size companies. We do a little bit of work with start-ups. We've got some packages built specifically for startups who've got a little bit of funding already in the pipeline.

[00:01:46] Adam: Got it.

[00:01:48] Mike: But typically service-based businesses, usually financial services, professional services or lawyers, CPAs.

[00:01:55] Adam: Are they receptive? Are lawyers and CPAs receptive to becoming remarkable and embracing?

[00:01:59] Mike: You know they are because they're such competitive markets, right?

[00:02:02] Adam: Yes, almost commoditized.

[00:02:04] Mike: Yes, and so really your brand is one of your best features to really set yourself apart from your competition and it's hard. It's hard work to figure out what makes one law firm really special and unique and different from another one. That's the hard work that we do is to help them uncover what they're already doing that's unique and then really research their audience, research their customers, and figure out where are their other avenues where they can either niche their brand or maybe look for some ways to bring some unique attributes to the engagement with their clients.

[00:02:40] Adam: Awesome. Sounds good. Well, before the mics were rolling, Mike and I spoke probably longer than the episode will actually be, just shooting the shit. Hopefully, we're not talked out, but we did not talk about the actual topic. Today, Mike, when I invited him on, he came right out and said, "Hey, there's a lot to talk about with the strategic maneuvering of Amazon." Speaking of start-ups, that's a small nimble startup. Jesus, it's the Death Star.

[00:03:10] Mike: It's the Death Star. Totally, it's the empire.

[00:03:12] Adam: But I was really excited to read your approach to that conversation. Why don't you give me an overview of how you see that whole, specifically Amazon acquiring Whole Foods and what you're seeing and how you're seeing that play out? What do you think they're trying to do?

[00:03:28] Mike: So obviously, I think most people get that Amazon's making a play for groceries, into the grocery space. It's really interesting for me to watch that play out with Whole Foods in that. While I think there are some strategic advantage to that acquisition from Amazon's standpoint, obviously, they're getting a supply chain which from everything I'm seeing and a lot of conversations I've had with people, that seems to be the overarching strategic play for Amazon. But what's interesting is they went after a brand that feels culturally very different from Amazon's brand, right?

[00:04:04] Adam: I agree. I agree.

[00:04:05] Mike: Amazon's known for somewhat being known for low-cost, providing you a really good cost value for their products, great delivery. They own logistics like almost no one else does now, but very results-driven, performance-driven culture.

[00:04:25] Adam: And cutting margins.

[00:04:26] Mike: Oh, yes.

[00:04:26] Adam: I mean really willing to lose on price. They don't care about profit. It's a famous-- Jeff Bezos.

[00:04:32] Mike: Which is amazing that Bezos has gotten this far with that strategy.

[00:04:35] Adam: It's nuts.

[00:04:35] Mike: Obviously, they've stumbled into a whole another product offering with their Amazon web services that really bankrolls everything else they do, somewhat like Google whose AdWords product really pays for almost everything else that they do.

[00:04:48] Adam: Yes, and it gives them a lot of latitude.

[00:04:49] Mike: Yes, so--

[00:04:51] Adam: Yes, and even beyond the supply chain, I think they got distribution so as they were looking for ways to expand into a lot of Amazon Fresh and a lot of other sorties they had made into a grocery, I think that was the missing link was how do we distribute this stuff to keep food fresh and produce is a whole different animal than selling books or Bluetooth speakers, right?

[00:05:15] Mike: Yes. The interesting thing for me though is just that the brand equity that they purchased from Whole Foods really doesn't translate to Amazon.

[00:05:23] Adam: Not at all.

[00:05:24] Mike: So, I made a prediction really earlier on and I got kind of reamed on Twitter for it, which was that I expect in three years, Whole Foods as a brand will not exist anymore.

[00:05:33] Adam: You think they'll change it out to Amazon-

[00:05:36] Mike: I think they're going to have to.

[00:05:36] Adam: -Fresh or--?

[00:05:37] Mike: Because I think in the process of making Whole Foods a part of the Amazon ecosystem, they're going to lose the core audience of Whole Foods. So, I'm not talking about the Whole Food shoppers who still complain about the price, because that's not their core audience. Their core audience was the original customers and the subsequent kind of stream of customers that they built over the '80s and '90s who cared about organic. Organic, organic, organic, and having access to the freshest, the most pure foods possible, and would pay whatever price it was.

That's the core of their brand. It's still is that. Yes, they've picked up other people around that and now you've got other brands who are kind of getting into that space.

[00:06:25] Adam: Well, that better-for-you food trend has gone wider. I don't think Whole Foods-

[00:06:30] Mike: Yes. They can't own it anymore.

[00:06:31] Adam: -can't take all the credit but that's a lot of their margin that they've earned is having other people come into that tent and want those things, even though I'd bet you most of those consumers don't even know why they prefer organic over non-organic.

[00:06:43] Mike: Yes, and I think intrinsically, Amazon's brand culture will destroy that pillar on which Whole Foods is built.

[00:06:51] Adam: Yes, let's get into this. This is interesting. So, Whole Foods is based on-- grocery has no margin. Traditionally, it's razor-thin. Whole Foods is actually based on having a margin, Amen?

[00:07:02] Mike: Yes.

[00:07:03] Adam: And marking things up and not apologizing and they call it the whole paycheck. Amazon does the opposite. They operate more like a traditional grocer. So, to me, the question was does Amazon value Whole Foods because there's room to cut in margin? Is that or they say, "Oh, we can actually cut margin and look like heroes and still actually produce a profit for a change." Because you can't have all those retail locations and lose like they're willing to do online where their overhead is just much more figured out and baked into the AWS cost.

[00:07:38] Mike: Yes. Maybe, but I think culturally, there's other issues. The way that Amazon operates internally is counter to everything that Whole Foods does, right?

[00:07:51] Adam: Yes, tell me more. I want to--

[00:07:53] Mike: For instance, I challenge anyone. I know people who would say Amazon is a customer experience focused company. And I say, "Well, in what way?" And I'd find very few examples of it. My biggest counter to that is have you ever tried to call Amazon?

[00:08:11] Adam: Yes. There's emails. There a lot of ways to reach them digitally, but yes, there's no phone number.

[00:08:18] Mike: So they intrinsically cut-off a segment of the market because they don't want to serve people in a certain way that people want to be served, which is through personal one-to-one interactions.

[00:08:28] Adam: That's interesting.

[00:08:29] Mike: And that tells me that there's a deeper value that drives their culture which is cost.

[00:08:36] Adam: Or efficiency.

[00:08:37] Mike: Which ultimately-- yes, efficiency which equals low cost. Because what is efficiency other than cost and speed?

[00:08:45] Adam: Right.

[00:08:45] Mike: Those are the two factors that you're gaining through efficiency.

[00:08:48] Adam: Yes, that makes sense.

[00:08:50] Mike: Whole Foods doesn't have that culture. Whole Foods is a high-touch culture.

[00:08:55] Adam: Very much face to face-

[00:08:56] Mike: Very much face to face.

[00:08:57] Adam: -somebody can stay in there and explain the product to you and Amazon is all about, "Click here. Do you want to buy it or not?"

[00:09:01] Mike: More so than most other grocery providers. Even within their own domain, their own space, Whole Foods is banking on high-touch-

[00:09:11] Adam: That's interesting.

[00:09:12] Mike: -that when you start to bring in a culture from Amazon. Let's be honest, who's going to win the cultural war between Amazon and Whole Foods as they merge? It will be Amazon.

[00:09:21] Adam: The guy who signed them the check.

[00:09:22] Mike: The guy who's signing the checks. For all the things that John Mackey talks about bringing Whole Foods culture to Amazon, I think the reverse is really what's going to play out in the long run.

[00:09:32] Adam: Well, which parts does Mackey think he can export to Amazon?

[00:09:38] Mike: I think he thinks he can export high-touch culture. I think he thinks he can export a focus on culture. So, he's the originator of Conscious Capitalism and that movement, one of the originators.

[00:09:50] Adam: He's at the forefront.

[00:09:52] Mike: He's a huge component for it. The four tenants of Conscious Capitalism are; Conscious leadership, which means you have leaders who care about culture, who care about every stakeholder, not just shareholders.

Jeff Bezos, I don't know. Maybe. I haven't run into the rubric of what makes a conscious leader. Maybe. I think he's maybe somewhere in the mix and it's a scale for all of these, but--

[00:10:17] Adam: His awareness and emotional IQ is off the charts, for sure.

[00:10:21] Mike: Yes, for sure, but does he really care about all the stakeholders?

[00:10:25] Adam: I don't know.

[00:10:25] Mike: I don't know. He certainly knows how to fight against his shareholders. He's done an amazing job creating a company that for most of its existence--

[00:10:34] Adam: How to steer them.

[00:10:36] Mike: It's how to steer them, which is counter to how most for-profit-businesses have to handle their shareholders. The shareholders can run the show to some degree.

[00:10:45] Adam: Well now he's earned that rare Steve Jobs heir-

[00:10:48] Mike: He has now-

[00:10:48] Adam: -where no matter what he says--

[00:10:49] Mike: -because they're making a profit finally.

[00:10:51] Adam: Yes, exactly.

[00:10:51] Mike: But it took him like, what? Twenty years?

[00:10:54] Adam: Yes.

[00:10:54] Mike: Fifteen?

[00:10:54] Adam: Yes.

[00:10:55] Mike: Yes. So, I mean to get that far without turning a profit for your shareholders is insane.

[00:11:00] Adam: That's nuts, but now he has carte blanche and do whatever he wants.

[00:11:05] Mike: It's conscious culture is a second tenant. I'd argue that there's very little of that in Amazon. I've talked to Amazon employees and I think you get a pretty wide range of answers on how much the culture is like--

[00:11:18] Adam: It may mean different things at a business unit level to them as well. That's such a sprawling empire.

[00:11:23] Mike: They got hammered for it a few years ago. There was that series of articles that came out about--

[00:11:28] Adam: About the workplace culture, but I think that applied more to corporate and warehousing than anything else. There's so many parts to that business that I don't think either of us can paint it with one brush, but I do compare to warehousing business directly to the grocery business, in my mind. So, if they're not doing it there--

[00:11:46] Mike: No, they're not doing it there for sure.

[00:11:48] Adam: And that's the culture rift that you're speaking of.

[00:11:50] Mike: Yes, and at the executive level. If you're burning through, maybe not highest like the sea level, but if you're burning through the VP level because people can't keep up with this performance-driven culture, I think there's serious intrinsic challenges down the road to that. I don't see that meshing with Whole Foods in John Mackey's vision for how to build culture. I'm in totally space on the other two now, the other two tenants of Conscious Capitalism that John--

[00:12:23] Adam: That's okay.

[00:12:24] Mike: I think if you run the whole gamut of tenants that John Mackey really espouses and I think tries very hard to run his company through that framework.

[00:12:35] Adam: It seems like he's really living it from what I've read and heard from him.

[00:12:40] Mike: I think he is. He's been challenged right now with this sale and he's actually come out and said explicitly, "I didn't really want to do this. I was a bit forced." He actually would go back to some of the shareholder decisions that he made bringing on certain investors earlier in his company, too.

[00:13:00] Adam: Painted himself in a corner along that.

[00:13:01] Mike: He's like, "I made a mistake and I didn't bring on investors who shared my vision for how to run and build a company." And he's now facing the consequences of that.

[00:13:12] Adam: Well, let's think a little bit about, if you don't mind, the competitive environment just for grocery, because Amazon in that space, never mind, just take Whole Foods out of it, imagine there is no-- imagine Amazon was able to just have all of the sudden 600 locations.

[00:13:32] Mike: [laughs] You think there's a way they could have, but we can talk about that in a minute.

[00:13:34] Adam: Yes, I don't know what else they would have bought or something, but they would have gotten there one way or another. In that environment where margin is razor thin and Amazon is notorious, they would have gotten there if they could just get a foothold, but you're right. With Amazon, with the Whole Foods, the competitive advantage that Whole Foods has is totally different than a competitive advantage that Amazon has, which is ruthless price cutting, ruthless expediency, maybe not customer-- customer service is not their thing.

[00:14:07] Mike: Their delivery will be amazing. There's no doubt about that.

[00:14:10] Adam: Well now, for sure. Yes.

[00:14:12] Mike: They certainly got logistics out of this deal. Delivery and supply chain is absolutely the value to Amazon through Whole Foods. I think for me, part of it was like if I was sitting in next to Jeff, he's like deciding whether to buy, I think the one thing I'd keep coming back to, I would say, "Jeff, you're paying a premium for Whole Foods no matter how they're doing." So, they haven't been doing great-

[00:14:36] Adam: No, it's been down.

[00:14:36] Mike: -in the last year or two. It's been down. So, okay. Maybe there's a fire sale approach to that, but no matter what, the Whole Foods brand is carrying some equity.

[00:14:46] Adam: I would say it's probably 20% of the cost is that green type.

[00:14:50] Mike: Exactly, and I'm like, "You're not going to get any value out of that." Now, maybe he thinks that there's enough of an urban crossover because they're both are really focused on urban audiences-

[00:15:00] Adam: Yes, that's interesting.

[00:15:01] Mike: -in that role. So, maybe it's enough that they think, "Well, if most of Whole Foods is Amazon Prime customers already and we can add in some value that way, then maybe there's a benefit to combining and buying that audience."

[00:15:16] Adam: So, you don't think though-- so he's paid a premium.

[00:15:19] Mike: I think definitely that he's paid for a premium.

[00:15:20] Adam: I agree. Let's make up a number. Let's say the number was inflated by let's call it 18% of his purchase price because I think we all-

[00:15:26] Mike: [crosstalk]

[00:15:27] Adam: -thought like, "That seems like a lot of money he's paying." Probably, that margin is probably what it was, but you're saying you don't think that brand is going to survive?

[00:15:35] Mike: I don't.

[00:15:36] Adam: He's going to write off that 1.2 million or will he spin off or contain the Whole Foods brand to some other-- does it become a retail brand? Maybe not the storefront, but maybe they have a Whole Foods line of frozen foods. You know what I mean?

[00:15:52] Mike: Yes, that's an interesting take. Does Whole Foods have a private label?

[00:15:57] Adam: I don't think they do have a private label.

[00:15:59] Mike: They're not like Trader Joe's.

[00:15:59] Adam: No. Well, Trader Joe's is all in on private label.

[00:16:02] Mike: It's all private label. Yes, I get that. That would be an interesting move. I'm not sure it translates to product.

[00:16:09] Adam: No, definitely not today.

[00:16:12] Mike: Honestly, if you look at the portfolio of Amazon because Amazon's not the only brand in the Amazon portfolio.

[00:16:19] Adam: True.

[00:16:19] Mike: So, I think a good example might be Zappers.

[00:16:21] Adam: Yes, when they kept it-

[00:16:23] Mike: They kept it-

[00:16:23] Adam: -pretty much as is.

[00:16:24] Mike: -as is. I think because Amazon is so adamant to disrupt grocery, they will have to put their brand on it at some point.

[00:16:40] Adam: To take an ownership position in the category and say, "We are the disruptor." Now, when you see the Amazon logo, you'd think about it differently.

[00:16:48] Mike: And it will have to scale-

[00:16:49] Adam: Consumers will do that.

[00:16:50] Mike: -far beyond what Whole Foods is able to scale to in its current brand. You would have to really work very strategically and hard to transition the Whole Foods brand to be something more accessible and acceptable to a wider audience who probably won't care as much about organic or fresh. I think in that process, you'll destroy the core of what Whole Foods is as a brand.

[00:17:18] Adam: Yes, I agree. No, I get what you're saying because what Amazon wanted is that last part of my regular purchase behavior that they couldn't get to when they tried with a few different departures. They just couldn't do it. Since Whole Foods serves so few as a total population, I agree. If you've been reading about what Target's trying to do, they're talking about adding separate entrances to some of their stores, especially the bigger stores.

[00:17:49] Mike: I saw Walmart's doing it, too.

[00:17:50] Adam: So that you just go right into the grocery section and you can leave without going through the rest of the store potentially. I'm sure that's not what they would really like. I wonder if that would be a middle ground for Whole Foods Amazon where there's a side entrance that's the Amazon entrance where I could go down just the aisles, they're discounted. Discounted is not the right word, but not the totally hit-you-over-the-head with margin mark-up organic stuff.

[00:18:15] Mike: Yes, that'd be interesting. As I was processing all of this as it happened-

[00:18:21] Adam: It's a lot.

[00:18:22] Mike: -the thing that popped in my head is and I think this was a pipe dream at the time and probably had other constraints, it would never have worked, but I think there was a brand three years ago that if Amazon had their act together at that point, they should have gone after it.

[00:18:37] Adam: Who's that?

[00:18:38] Mike: Fresh & Easy.

[00:18:39] Adam: Yes. That was Tesco, right?

[00:18:40] Mike: That was Tesco. They tried to enter the US market and were unsuccessful because they didn't have quite the chops for the American distribution, but if word have gotten Amazon, I think a closer likeness to what they're shooting for which is--

[00:18:57] Adam: Did you have that thought at the time or did you think that now in retrospect?

[00:19:00] Mike: I thought that now in retrospect.

[00:19:01] Adam: Yes, that was a perfect fit.

[00:19:03] Mike: I think that was a perfect fit. Now, I'm sure there was constraints with licensing with the brand and all the issues you have of a multinational deal like that.

[00:19:09] Adam: I wonder if Tesco would have been looking for a buyer to get to bail them out.

[00:19:12] Mike: I can't imagine why they wouldn't-

[00:19:14] Adam: I can remember--

[00:19:14] Mike: -because they got stuck with a ton of source.

[00:19:16] Adam: Yes, I can remember about a half dozen opening around here that just never even opened. You sign one up. I remember one that I walked through. I was like, "This is kind of weird to me. I don't really understand what I'm--" It's not kind of a [unintelligible 00:19:28]. I don't know if it was a convenient store or a grocery. I couldn't figure it out.

[00:19:32] Mike: Because the European model they try to take to the US and I don't think we're ready yet for it, but I think some of the core brand; so, efficiency, that's a huge one for Fresh & Easy or was. Easy access to easy meals. My wife and I actually used it a lot when we were both working full-time.

[00:19:52] Adam: It felt more urban than suburb and I saw it mostly in the suburbs and I was disconnected from it.

[00:19:58] Mike: It was like the cheaper alternative to Trader Joe's in a lot of ways for us.

As we talked about it in our office and stuff with my employees, we were talking about what do we like about Fresh & Easy versus what do you like about Trader Joe's? It was a lot of the same stuff like pre-made meals that are decently made. They're not chock-full of tons and tons of preservatives. They're not frozen. They're at least made fresh at a reasonable price. Those are all the things that I would expect from an Amazon grocery store.

[00:20:30] Adam: Now they have access to that food that's coming through the grocery store that they own now, so they don't have to work too hard to assemble that stuff.

Do you think their delivery service, should that launch? Do you think their meal delivery service, do you think that will take off? I think it will put Blue Apron out of business because I don't think Blue Apron really has a viable--

[00:20:49] Mike: Yes. I don't think Blue Apron ever really had a business. [laughs]

[00:20:53] Adam: Yes. I think it was a lot of--

[00:20:54] Mike: If you look at their numbers, they don't have a business-

[00:20:55] Adam: No, now--

[00:20:56] Mike: -because they pay more in marketing than they do in--

[00:20:58] Adam: Yes. I mean their acquisition cost is ridiculous and so Amazon can come in and undercut them-

[00:21:03] Mike: So, I think as long as it's-

[00:21:03] Adam: -and put them both out of business.

[00:21:04] Mike: -executed well. I've used delivery service from grocery stores, particularly from Safeway.

[00:21:10] Adam: For meals or just for groceries in general?

[00:21:12] Mike: For groceries.

[00:21:12] Adam: Got it.

[00:21:12] Mike: Whole week's worth of groceries in one delivery. My wife and I quit that because we had so many issues with the logistics of it. There's just a number of challenges I think to delivery of fresh produce, as well as a large order where there's complexity of the order. If anyone can do it, it's going to be Amazon. The question I have is their current delivery model for their warehouses and their current typical amazon.com shipping model is-- they outsource it?

So, every single delivery driver that rolls up to your door and drops an Amazon box, if it's not USPS, if it's going direct, that is a contractor. That is not an actual Amazon employee.

[00:22:02] Adam: Right there you have a-- that's a glitch potentially.

[00:22:05] Mike: So, training those people to deliver groceries-

[00:22:08] Adam: And to care.

[00:22:08] Mike: -and to care, and then who picks them? So, the way that Safeway has done it, they actually contracted it out. They have a warehouse where they're storing all their food that goes out to their stores and they're delivering from the warehouse, not from the store.

[00:22:24] Adam: Oh, that's flawed, too.

[00:22:26] Mike: Then they would have an actual delivery service that they contracted, bring it to your door because Safeway doesn't have any delivery-

[00:22:36] Adam: Got it.

[00:22:36] Mike: -logistics. So, they outsource that. We had a number of issues. The biggest one just being like wrong orders and then the complexity of negotiating the return.

[00:22:47] Adam: Right. Now, what do I do?

[00:22:48] Mike: What do I do?

[00:22:49] Adam: Now, it's on me to come to the store and I didn't want to go to the store.

[00:22:51] Mike: Their customer service, it was always a call, customer service was horrible just logistically. It wasn't like they treated us bad, but it was just like, "We don't have this all figured out."

[00:23:02] Adam: It was too much friction.

[00:23:03] Mike: It was too much friction. I don't know. The really interesting thing, I think if Amazon does it, they have to make sure they've got it right before they go big scale with it because I think that's one of the easiest ways to dissuade people from jumping back in to--

[00:23:16] Adam: If I have tried it before and this isn't better, I'm not coming back.

[00:23:19] Mike: And there are already a lot of people I think like me or some number that are already a little jaded. They're like, "I don't know. I'll try it. I'll definitely try it. I would have no problem trying it."

[00:23:30] Adam: I think we would try it, too, knowing their logistical capabilities. Do you think the user-- I don't want to say the customer of Whole Foods and I can't compare them to the customer of Amazon in whole, but I could compare it to Amazon Prime. That's probably a pretty good-looking Venn diagram that's pretty tightly matched up.

[00:23:49] Mike: Yes. The question I would have, that Venn diagram. So, are those people who typically do their entire shopping at Whole Foods?

[00:23:58] Adam: Yes. Did they like walking through Whole Foods and therefore they won't want to lose that part?

[00:24:04] Mike: Well, I see and I even question whether-- I think Amazon Prime is a much wider net, much wider net than the Whole Foods audience.

[00:24:12] Adam: True.

[00:24:13] Mike: Like for instance--

[00:24:14] Adam: There's a lot of ways into Prime.

[00:24:15] Mike: That I'm a huge Prime user and fan. I love it and both my wife-- I have it for my business. I can't tell you the last time we shopped at Whole Foods. Now, I'm one case obviously, so there's probably a lot-- I'm not indicative of the overlap.

[00:24:30] Adam: So, your individual experience is not representative of the entire--

[00:24:34] Mike: It doesn't represent the Venn diagram, yes.

[laughter]

But the reason we don't-- there's two reasons, one is the prices. I just don't find enough quality or enough-- I'm not sold on the level of organic and fresh, that whole--

[00:24:49] Adam: Not so much better that I want to pay double.

[00:24:50] Mike: I don't need quite that much for the cost that it is.

[00:24:53] Adam: The fair.

[00:24:54] Mike: The second is location. The closest Whole Foods to us I think is further than Safeway, Fries, Sprouts, Trader Joe's. There are like four or five other places that are significantly closer to our location.

[00:25:09] Adam: That's a different problem.

[00:25:10] Mike: That is a different problem, but if you consider price and selection, so I can go to Safeway or Fries and get my entire week's worth of groceries in one trip, right?

[00:25:20] Adam: Yes.

[00:25:20] Mike: And if I care a little bit more about freshness and organic, you hit two, you do Sprouts and Safeway.

[00:25:27] Adam: Right, or Trader Joe's. Yes.

[00:25:28] Mike: And I know that from both of those trips, I'm going to save a significant amount of money over doing my entire trip at Whole Foods. So, I think the only play here is delivery. It has to have delivery for Whole Foods to work and their prices have to come significantly down.

[00:25:45] Adam: It has to have delivery because I think Amazon Prime is a convenience play more than anything else, it's not a price play. If you really do the math on it, it's not that good of a deal for probably the average user, super power users get a lot out of it with a free shipping or whatever.

[00:26:00] Mike: The video. [laughs]

[00:26:00] Adam: It's more about-- yes, and the video which I take advantage of, but it's convenience, it's things coming to my door. So, if they can't figure out the delivery, I don't know if Whole Foods just become-

[00:26:11] Mike: Or they're going to have to-

[00:26:12] Adam: -loss leading warehouses.

[00:26:13] Mike: -scale Whole Foods very quickly and get new stores going really fast.

[00:26:19] Adam: Do you think they need to add stores or do you think they just build on what the locations that exist and find other ways to monetize those bricks?

[00:26:26] Mike: If they can get delivery figured out, no, because it's the warehouse model at that point, right?

[00:26:30] Adam: Right.

[00:26:31] Mike: Amazon doesn't need a warehouse every--

[00:26:32] Adam: Plus the distribution they already have online.

[00:26:34] Mike: Yes, exactly.

[00:26:35] Adam: Now, it's better than UPS at that point.

[00:26:40] Mike: No, but I think the real challenge is-- okay. Well, how do you justify the brick and mortar retail store that has an overhead to it that you don't have with warehouses? So, think about Costco.

Costco has figured that out. They've figured out how to not have a bazillion stores, but warehouse style, so they have volume going for them, and they have a value add of prices because they're in bulk. That lower price gets people to come, even if I've got to go a little bit out of my way to go.

I would actually argue that maybe not the grocery level, but at some level, maybe the next biggest competitor to Amazon grocery is actually Costco.

[00:27:24] Adam: Yes, I've had that thought as well and I thought maybe that would be a better acquisition target if they could figure out how to sell it because they operate the same way. They don't make money on the retail sales, they make money on the memberships. Amazon Prime. [crosstalk] identical--

[00:27:36] Mike: Yes, that would be a really interesting play if you close the store down and made it membership only. You'd have to have an Amazon Prime.

[00:27:43] Adam: Absolutely. Well, this has been really interesting. We just hit our time threshold. So, I committed to Mike that he would get back to his office in time to build some hours today and do some remarkable work for his clients. Thanks for being in here, man. I appreciate it.

[00:27:56] Mike: Thank you, Adam. This has been awesome.

[00:27:57] Adam: Guys, please go find Mike on Twitter. He is @remarkamike. He also has a podcast, which I'm going to beg him to be on, which is called the AZ Brandcast and I encourage you to find that. Where can they find that one?

[00:28:10] Mike: azbrandcast.com.

[00:28:12] Adam: Is it on-

[00:28:13] Mike: We're on iTunes.

[00:28:13] Adam: -Apple podcast or everywhere?

[00:28:16] Mike: We're on Google Music. We're on Stitcher.

[00:28:18] Adam: Awesome.

[00:28:19] Mike: We're all over the place.

[00:28:20] Adam: All the usual suspects?

[00:28:21] Mike: All the usual suspects.

[00:28:22] Adam: Fantastic. So, anything else you have going on Mike that you want to talk about before I let you go?

[00:28:28] Mike: No, that's it. Check out the podcast and thank you so much, Adam, for having me on.

[00:28:31] Adam: Awesome. This was a great conversation. So, guys, you can also find me on Twitter. I'm @apierno or @Instil_Strategy. Please, dig in. I love debate. I love feedback and I like to hear people tell me I'm wrong because then I learn.

[laughter]

So, thank you guys for listening. Thanks again, Mike.

[00:28:51] Mike: Yes.

[00:28:52] [END OF AUDIO]

Adam Pierno