E-commerce powerhouse Amazon has bought out Whole Foods in a deal valued at over $13.7 billion, signaling their choice to enter the $800 billion brick-and-mortar grocery industry. This deal is not only fantastic for shareholders of Amazon and Whole Foods, whose stock prices surged 3 percent and a whopping 27 percent respectively, but it also a sign that consumers may be in for a revolutionary change in the way they do their shopping.
This deal comes on the heels of Whole Foods losing one-fifth of its value over the last three years.
As anyone reading this knows, Whole Foods is expensive; there is sound reasoning behind the saying “Whole Foods: whole paycheck.” As a direct result, Wal-Mart and Kroger have expanded their healthy grocery options, applying serious pressure on their upscale competitor.
As predictable as the sun rising in the east and setting in the west, there will inevitably be pundits on the Left who criticize this acquisition. Some will call for anti-trust litigation, others will claim that Whole Foods will quit being a green company, and others will complain without any reason other than, “The bigger a corporation gets the more evil it must be!”
To assuage their fears, it is important to look at how this situation illustrates the free market’s ability to create value in unexpected ways and engage in creative destruction that leads to innovation. Many policy analysts and academics on both sides of the aisle are and have been concerned about the ways in which the status quo arrangement of the grocery market impacts low-income communities. The great irony is that while many of these researchers have called for government regulation of the industry, the market is already sorting it out in part due to this acquisition.
Whole Foods is failing because their high quality produced are priced beyond the reach of young people, their target market. Wal-Mart and Kroger responded, offering healthy options at an affordable price. Through market competition, the price of healthy products has gone down, allowing young people consumed by college debt and low-income communities to have access to much needed nutrition that has always been just out of their grasp.
In buying Whole Foods, Amazon is attempting to expand their AmazonFresh delivery service, which delivers groceries ranging from fresh fruit to diapers to people’s houses. By combining Amazon’s advanced delivery infrastructure with Whole Foods high quality supply chain, the price of Whole Foods products will not only go down to compete with Wal-Mart and Kroger, there will also be increased convenience and overall value created for the consumer.
One of the biggest hurdles that rural and low-income communities face is that stores like Whole Foods that offer high quality goods cannot open locations in their communities and stay profitable. These communities will soon have access to Whole Foods’ selection without having to find a location near them. Instead, market forces have used creative destruction to make it possible for high nutrition-content foods to come to them at a greatly reduced rate.
As is often the case, the free market has set in motion a series of innovations that will solve a so-called “market-failure”. Amazon was motivated solely by the profit motive, but that did not stop the company from helping to ameliorate the serious nutritional inequality between high and low income communities. The market did not cause this problem, but the market is going to solve it.
So instead of bemoaning the expansion of a large corporation, perhaps even Bernie Sanders should be cheering for the value that is about to be created in rural and low-income communities… and for his debt-ridden supporters who yearn to shop at the most hipster supermarket on the market.