Amazon.com Inc.'s planned $13.7 billion acquisition of Whole Foods Market Inc. unites two maverick businessmen who will now have to blend very distinct approaches to make the deal a success.
The acquisition, if it goes through, will require Amazon Chief Executive Jeff Bezos and Whole Foods CEO John Mackey to work together to combine Amazon's technology and customer know-how with Whole Foods' brick-and-mortar grocery expertise.
Continue Reading Below
Messrs. Bezos and Mackey share some traits. The two men -- who only got to know each other a few weeks ago, people familiar with the matter say -- are iconoclasts whose outsize personalities shaped their companies. They pioneered new strategies in their industries -- Mr. Bezos by shifting retail online, Mr. Mackey by popularizing health food -- and they are intensely competitive, say people who have worked with them.
But the two founders also have sharply different strategies and missions that could prove tough to marry. Mr. Mackey's Whole Foods, whose sales totaled $15.7 billion last year, has catered to wealthier customers with boutique brands and hands-on customer service.
Mr. Bezos has appealed to the masses with low prices enabled in part by centralization and automation. And Amazon, with $136 billion in revenue last year, has achieved far larger success financially -- putting Mr. Bezos firmly in charge.
"On both sides, they will have challenges with accepting that they can learn from each other, and letting go of the 'that's how we've always done it' mentality," says Forrester Research analyst Brendan Witcher, a former retail executive who now researches e-commerce and consumer behavior.
Amazon has experimented with physical retail for years, but the Whole Foods deal happened quickly. The companies signed a confidentiality agreement on April 27, according to people familiar with the matter and a federal filing -- amid a board shakeup at Whole Foods, and roughly two weeks after Jana Partners LLC disclosed a stake in the grocery and called for its sale.
Amazon and Whole Foods signed a second confidentiality agreement on May 7, the same weekend Whole Foods' board offered Jana two seats but rejected taking on a partner from the New York hedge fund. After the board changed, the deal coalesced quickly. Mr. Bezos was personally engaged and Mr. Mackey traveled to Seattle for negotiations, the people said.
Executives at Amazon and Whole Foods found they shared a willingness to let employees take risks and an emphasis on customer experience, according to people familiar with the matter.
The companies have said little about how they plan to integrate, and declined to make their CEOs available for interviews. But at least some benefits of the combination seem clear.
Mr. Bezos gains more than 460 stores across the U.S., a network that could let Amazon sell its private-label brands and devices in stores, expand its distribution network, and bolster its Prime Now and Fresh delivery businesses.
Whole Foods gets access to Amazon's data and technology, and the combined buying power of Amazon Fresh and Whole Foods could win better prices from grocery suppliers. Also, Mr. Mackey's new boss has been tolerant of thin profit margins, a welcome relief after activist investor pressure over profit and other issues. Amazon has said Mr. Mackey will remain CEO of Whole Foods.
Still, Mr. Bezos's team is likely to scrutinize Whole Foods' business practices seeking opportunities for change, former Amazon employees say. To better compete with rivals including Wal-Mart Stores Inc., for example, Amazon likely will push for lower prices, new technology, and more uniform stores to save costs, they say.
Mr. Mackey has balked at activist investors for criticizing Whole Foods as too slow to innovate, despite the company's recent efforts to do so.
Mr. Mackey, a 63-year-old Texan who studied philosophy and religion in college but didn't graduate, built Whole Foods with his partners into a national brand from one natural-food store in the basement of an Austin, Texas, house. They bought up local health-food chains, using capital from investors to open big stores in a sector long dominated by mom-and-pop shops. Whole Foods patched together 11 regions that were given autonomy to develop their own store concepts, signage and other flourishes.
"They are free to try new things," said Mr. Mackey in a recent interview. Employees study ideas inside and outside the company and don't "have to ask permission from Austin," where Whole Foods is based.
Mr. Mackey is more focused on the big picture than immersed in the details of everyday operations, former executives said. A strict vegan, he likes to cook dinners showcasing good eating to bring parts of the company together, said people who have attended.
Some say that the close-knit culture has drawbacks. "It's been a very paternalistic culture where it's a job for life. If someone doesn't deliver, you don't necessarily suffer the consequences," said Burt Flickinger, a grocery consultant.
At Amazon, performance is prized and, as with other tech companies, employees come and go more frequently, former employees say.
Mr. Bezos, 53, earned a degree from Princeton University in electrical engineering and computer science and worked on Wall Street before founding Amazon in his garage in 1994. He "has this unique ability to stay focused on a long-term vision, while also staying very focused on the details," says Joseph Thompson, a former general manager of retail at Amazon and current vice president of marketing and growth at BuildDirect, a home-improvement online marketplace.
Despite Amazon's size, Mr. Bezos tries to maintain a startup culture. Teams are typically kept small (defined by the ability to be fed with two pizzas) and there is a strict process for developing new ideas and inventing devices, which includes writing six-page papers for explanation, according to former employees.
When former Amazon employee Eric Heller met with Mr. Bezos and his team more than a decade ago to push for requiring customers to enter credit-card security codes while checking out, the CEO dug in on the details. The requirement would save costs by reducing the likelihood of fraud, but Mr. Bezos worried it would make transactions more cumbersome, Mr. Heller recalls.
"Until my mother knows what a [card verification value] is, we're not putting it on the transaction page," Mr. Bezos said, according to Mr. Heller, who has since founded consultancy Marketplace Ignition.
Some former employees and industry observers said it would take time for the companies and founders to mesh.
"They will be blended. It won't happen in three months but in two or three years it will," said Tom Furphy, former head of Amazon's consumables and Fresh divisions, and now CEO of Consumer Equity Partners, a venture-capital fund.
--David Benoit contributed to this article.
Write to Laura Stevens at firstname.lastname@example.org and Heather Haddon at email@example.com
(END) Dow Jones Newswires
June 18, 2017 18:12 ET (22:12 GMT)