Web Exclusive | July 2017 | By Kevin Hardy

What Amazon's Whole Foods Buy Means for Quick Service

Amazon's purported merger with Whole Foods will put added pressure on restaurants to differentiate themselves in the products and services they offer.
Amazon has seemingly endless resources to deliver products—including food—to consumers. flickr: Jeff Samsonow
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The June 16 announcement of Amazon’s purchase of Whole Foods sparked plentiful speculation over how the online behemoth’s marriage with the health food chain would further disrupt the business of American food. The $13.7 billion merger promises to marry Amazon’s distribution muscle with Whole Foods’ vast brick-and-mortar footprint, creating obvious competitive challenges for other retailers. But restaurateurs remain unsure of how the union will ultimately affect their business.

“It’s a question mark. We don’t know where the effects are going to be,” says Eric Wolfe, president and CEO Erbert & Gerbert’s Sandwich Shop. “But I think it’s going to make us stronger and better as an organization.”

Many industry experts have pointed to home delivery meal kits as a natural fit for the two companies to build off their distinct strengths: Amazon could pair its rapid delivery services with Whole Foods’ reputation for high-quality, if relatively expensive, fresh ingredients. Wolfe says such a move would make sense, but he doesn’t worry that it would steal away business, even if Amazon becomes the market leader in meal kits (Amazon is reportedly offering meal kits in some markets already). That’s because meal kits are often family-centric, dinner occasions―distinct from those occasions when a customer just wants to grab a quick bite. A robust play at meal kits could certainly threaten fine dining restaurants, casual dining chains and supermarkets, but he believes fast-casual and quick-service segments remain somewhat insulated.

“They have the power. They have the cash to do it. They’re a competitor and they’re a threat,” Wolfe says. “But I still believe that’s going to be more of a dinner situation versus a lunch situation. And we’re more geared toward lunch. If someone needs a good quality sandwich fast, we can deliver it.”

Wolfe speaks from personal experience: his teenage boys have become big fans of their at-home meal kit service.

“I never thought my family would be doing something like this: having a box delivered and making a dinner,” Wolfe says. “And I’m finding that my sons are making dinner. It’s preparing them for college. They’re getting more engaged in food making, versus ‘mom and dad make me something.’”

On a recent trip to Whole Foods, Wolfe spent more than $30 on lunch for two. That kind of price point gives more value-minded concepts like Erbert & Gerbert’s an edge, Wolfe says. For now, he says restaurants like his still offer something special for customers.

“It’s the quality of the product and a product that you can’t get anywhere else,” he says. “Second, it’s the service and the ability to deliver that sandwich, soup or catering at a value to the customer.”

Scott Iversen, VP of Marketing at Wisconsin-based Toppers Pizza, says the move is a good one for consumers. But it means restaurants will have to work harder to prove themselves for increasingly on-the-go customers.

“More and more restaurants are getting into the delivery space because the customer is demanding ease and convenience of prepared foods at home,” he says. “And with more and more restaurants getting into delivery, it puts a lot of fun pressure on brands to really differentiate themselves in the products and services they offer. This is shift in the way people use home delivery.”

While specialty grocers like Whole Foods can steal occasions away from quick-service and fast-casual restaurants, Iversen believes the merger with Amazon will ultimately put more stress on other grocery chains offering prepared foods in the store.

“I think primarily it will hurt the grocery industry because the restaurant industry is still more about the experience you may have with a brand,” he says. “It’s a big part of why people go out to eat. It’s obviously about the food and the experience they crave, but it’s also about the experience with the brand.”

Iversen says restaurants must provide something that customers can’t find elsewhere: whether that’s service, food, or both. He thinks his brand offers cravable items that consumers just can’t purchase anywhere else, like buffalo chicken macaroni and cheese pizza and a loaded tater tot pizza.

As lines continue to blur between restaurants, grocers, and convenience stores, Iversen says he can envision a time in the future when Toppers offers a take-and-bake option for customers who like the experience offered of at-home meal kits.

“I totally think in the future it is a possibility. We’ve had conversations of, ‘well would a customer like to just get a meal kit of a pizza and go home and make it with the family so they could customize their experience however they like,’” Iversen says. “It’s not something we’re pursuing at this point, but I could see it happening for sure.”

The merger of Amazon and Whole Foods may ultimately prove monumental, but it shouldn’t be unexpected. Phil Friedman, president and owner of the 85-unit Salsarita’s Fresh Mexican Grill, says it falls in line with decades of evolution in how people purchase food.

“I look at this as a continuing segmentation of the way people use food services, the way people use restaurant-style food. As people have alternative use of access—online, telephone, delivery services―it’s consistently increasing access, choice and speed,” Friedman says. “I think this notion of segmentation means there’s so many ways to get restaurant-quality food. It’s not a new trend, it’s continuous movement.”

He says restaurateurs must realize that customers are more willing than ever to purchase food without a face-to-face interaction with the actual supplier: think third-party delivery services like UberEATS and Amazon Restaurants. And customers increasingly value speed and convenience.

“It is a challenge in a sense that the four walls become a little different,” Friedman says. “The access to my four walls means that some of the stuff I make and produce is going to be picked up and delivered. Unless I’m really special, I think general restaurants have to be aware that people want to access them in different ways. It is a challenge, but it is an adaptable challenge. You have to stay current, and you have to stay aware of it.”

Friedman, too, believes restaurants still boast unique advantages over big-box grocery stores: “A grocery store can’t be on every corner. And it has to be a grocery store, too, right? If you’re doing site development work, you still want a good location that makes sense for a restaurant.”

And even with the popularity of delivery and online ordering, he believes many customers still crave personal service and human interaction in their dining experiences. At Salsarita’s, managers circulate among customers in the dining room. And employees offer small touches like refilling fountain drinks for customers.

“If you take the number of times people eat out in a week, there are certainly times when they want to go in and they want to sit down and they want someone to bring them refills for their drinks,” he says. “There are definitely reasons, days of the week, and parts of the week when they’re going to choose restaurants over grocery stores. And I think as operators we have to do the best job as we can to differentiate ourselves.”