On Friday morning, June 16, 2017, my phone lit up with a flurry of text messages and push alerts. Amazon was acquiring Whole Foods for $13.7 billion, the companies had announced, in what was Jeff Bezos’s brashest bet in a very long line of them.
While the announcement was stunning in some respects, it did not come completely out of nowhere. Amazon had long struggled to sell consumables and fresh groceries profitably, and it would be easier to do that with physical stores. Also, in April of that year, Bloomberg reported that Amazon executives had pondered the idea of acquiring Whole Foods a few months earlier, but never developed a formal plan to make an offer for the company.1 Yet as public filings would later reveal, around the time that article was published, Whole Foods CEO John Mackey was feeling pressure from an activist investor who wanted the underperforming chain to consider selling, and had a liaison reach out to a top Amazon official.
By the final Sunday of the month, Mackey and a few deputies were on a plane to Seattle to meet with Bezos and other executives in the Amazon CEO’s boathouse. The Amazon contingent included one of the corporate development leaders who had threatened Marc Lore and his Quidsi cofounder at that fancy New York City dinner years earlier when the duo had broached the topic of selling Diapers.com and the rest of their company to Walmart instead of Amazon. Doug Herrington, the longtime internal proponent of grocery delivery and, for better or worse, Amazon’s king of CRaP, also attended the Whole Foods summit.
Less than a month later, the two sides would agree on Amazon paying a purchase price of $42 a share, and business history was made. After a decade of developing mostly middling grocery initiatives that had yet to break through in a big way, it seemed like the Amazon team was waving a large white flag accompanied by a mea culpa: physical retail isn’t dead. But Amazon rarely makes a move only for defensive reasons. The acquisition was also received by grocery store executives, including at Walmart, as a warning flare: Amazon was coming.
Checkers vs. Chess
June 16 was supposed to mark a celebration of sorts inside Walmart, too—at least for Marc Lore and Andy Dunn, the cofounder and CEO of the menswear brand Bonobos. Dunn and Bonobos had gained a certain level of business-world fame for being one of the first fashion brands to hawk its line of goods first and foremost online, and later expand into the physical world, rather than vice versa. That same morning, Walmart announced that it was acquiring Bonobos for $310 million.2
Unlike distressed websites like ModCloth, which Walmart snatched up for less than $100 million, Lore knew Bonobos would be more expensive but envisioned the startup playing a more strategic role in the Walmart digital transformation plan. For starters, Lore saw Dunn, the charismatic founder, as the leader who could oversee a growing portfolio of acquired and incubated startups inside Walmart. There was also hope that the Bonobos deal would serve as another poster child in the “this ain’t the same Walmart” narrative-building exercise aimed at future hires and Wall Street investors.
Despite this vision, and Lore’s strong standing as Doug McMillon’s digital prophet, the Bonobos acquisition idea was far from a sure thing.
“Everyone thought he was crazy,” said Walmart executive Lori Flees, McMillon’s head of mergers and acquisitions.
In early 2017, at Walmart’s year-start meeting for executives, Lore was exasperated that his strategy was not resonating with those he would need buy-in from to close such a deal. Flees, who oversaw Jet’s integration into Walmart after encouraging McMillon to make the deal, tried to help. She spent three hours on the phone with the e-commerce boss Lore, each chatting from their respective hotel rooms, listening to the entrepreneur vent and counseling him on how to explain his Bonobos idea in a way that would resonate with the retail traditionalists in Bentonville.
“My role was a bit of a translator,” she told me. “I felt like my job was helping him understand where [Walmart] was, and why his idea was crazy from their viewpoints.”
Flees herself was not a proponent of acquiring Bonobos, but still felt a responsibility to help Lore make the best internal pitch he could. And that pitch needed to focus at least in part on profits, as many tough conversations inside Walmart do. But it would also help to offer a vision of Bonobos as the foundation of a new portfolio of attractive name-brand merchandise that consumers could only buy at Walmart, and not from their Seattle archrival.
“The argument that had to be made . . . was how do you get to better economics on the e-commerce side,” Flees told me, referencing the robust profit margins of the apparel industry that Bonobos competed in compared to the slimmer margins of consumables, while also creating “some differentiation in what you’re offering relative to what Amazon is offering.”
Lore’s pitch worked. On Friday, June 16, 2017, Walmart officially announced the deal for Bonobos, alongside an interview with the New York Times.3
The timing was almost laughably terrible for Walmart because of Amazon’s Whole Foods deal that went public the same day. For every Walmart advancement in recent years, Amazon always seemed to be one step ahead. This time was no different, and the sting was felt deeply within Walmart’s e-commerce division.
“That was a really scary moment for the organization,” a former Walmart strategy leader told me years later. “I remember everyone saying, ‘Okay, Bonobos versus Whole Foods—we are playing checkers, they are playing chess.’”
It sure looked that way from the outside, too. The Walmart-Bonobos deal seemed like a fine and interesting bet. But the Whole Foods acquisition was an altogether different board move—an industry-rattling affair that, despite the organic grocer’s modest 4 percent share of the overall US grocery market, signaled Amazon’s firm intent to become a giant player in the sector that Walmart was long used to dominating. To make matters worse, Walmart’s stock price dropped nearly 5 percent following the news of the deal,4 while Amazon’s stock gained more value from the announcement than it cost the company to purchase Whole Foods. In a way, Amazon got Whole Foods for free.5 It almost seemed unfair.
“My heart sank,” said Scott Hilton, the former Quidsi and Jet executive who took over as Walmart e-commerce’s revenue chief after Jet was acquired. “I thought it was a great acquisition.”
Silver Linings
For Marc Lore, though, there were some silver linings—or potential ones—in the wake of the deal. Lore is an optimist by nature, and possibly necessity; the entrepreneur has often stressed that founders need to focus on the tiny chance their idea will pan out, rather than the odds heavily stacked against them.
For starters, Lore felt a certain level of relief over what the deal wasn’t—an acquisition of a large mainstream grocer that competed more directly with Walmart on selection and prices—than what it was: a deal for a grocer with less than 5 percent grocery market share in the US, and one that caters toward well-off consumers who typically don’t make up the core Walmart customer base.
“If they had bought Kroger,” said Lore, “we were screwed.”
Lore also predicted the deal could turn into a distraction for Amazon since it marked its first large-scale entrée into physical retail—as well as specialty types of grocery products like organic foods, and fresh meat and fish—that the company knew little to nothing about.
Perhaps the brightest of the linings, though, was the opportunity the deal gave Lore to stress to his counterparts on Walmart’s physical retail side that Amazon wasn’t standing still—and that Walmart needed to innovate with equal or superior urgency. From day one, Lore and his deputies used whatever piece of external news or announcement they could to urge Walmart leaders to green-light faster and bolder moves as part of the company’s digital transformation. This event would be no different.
The Whole Foods deal, Lore later told me, “was a great catalyst.”
Lore would make his case—albeit via video conference—at an executive gathering of around twenty Walmart officials that took place within a few weeks of the Amazon/Whole Foods announcement in June 2017. The location was a meeting room above the Walmart Museum and Sam Walton’s original 5&10 store in downtown Bentonville. While the strategy meeting was already planned before the acquisition announcement, the Whole Foods deal would now become an important topic of conversation. Part of the discussion involved educating attendees on the organic grocer, whose customer demographics and typical store locations differed greatly from Walmart’s. Whole Foods—with its “Whole Paycheck” moniker—typically appealed to higher-income households in cities and in suburbs with dense populations of well-heeled shoppers. The average Walmart customer, on the other hand, comes from a household that brings in less income, and lives in those rural areas where the retailer has a much larger presence.
Greg Foran knew that customer well; he oversaw the company’s massive four-thousand-store retail footprint in the US and had been tasked by McMillon with the gargantuan assignment of reversing the chain’s disappointing performance in the US. Foran, a New Zealander and the former chief of the supermarket division of Woolworths in Australia, often reminded his colleagues that the most profitable Walmart model was the traditional Walmart model: customers drive to the store themselves, shop for their goods themselves, and transport those goods home themselves. He did, however, warm to the online grocery pickup model. But e-commerce leaders didn’t believe that Foran was a strong supporter of the grocery delivery model and its challenging economics.
With both store and digital leaders assembled, Lore stressed the urgency of expanding Walmart’s online grocery offerings as quickly as possible, by whatever means (and in whatever forms) necessary. At the time, about nine hundred Walmart stores offered grocery pickup as a free option for web customers, but Lore and his deputies wanted to see the nationwide rollout accelerate even faster. Lore also stressed, more than anything else, that while Walmart’s pickup business offered a strategic advantage, grocery delivery was the next battleground and the company needed to step up its expansion.
Walmart was already on its way to leaning into online grocery, store leaders would later tell me, as a potential game-changing advantage over Amazon, and Doug McMillon had previously labeled online grocery as one of his top enterprise-wide initiatives—with Foran and his team overseeing the store execution of it even before the Jet team joined the company. As a result, Lore’s words fell on mostly receptive ears. Years later, countless former Walmart executives and employees pointed to the Amazon/Whole Foods tie-up as an inflection point. A wake-up call even.
Only a week after Amazon announced the finalization of the Whole Foods deal, Walmart issued a press release announcing that its grocery pickup service would soon be available at its one thousandth Supercenter. In what seemed too coincidental to be, well, a coincidence, Walmart said that pickup locations No. 995 through 1,000 would all be located at stores in a city that was especially important to Amazon: its hometown of Seattle, Washington.
“In Seattle, the company will be giving away Google Home devices to the first 250 Online Grocery customers in the market,” Walmart said in the press release.6
A few months later, Walmart made another online grocery announcement, but this time it pertained to grocery delivery instead of pickup. The press release noted that delivery of groceries would soon be available from Walmart Supercenters “coast to coast,” with a geographic expansion from six metro areas to one hundred by the end of 2018.7 Up until that point, the rollout of grocery delivery was more methodical and strategic. But after the Whole Foods deal, the feeling among e-commerce leaders was that there was company-wide alignment on a more straightforward tack: “Screw it: everywhere, everywhere, everywhere,” as a former executive described it to me.
“I am extremely confident they would not be on that path if Amazon had not acquired Whole Foods.”
The Battle from Within
If someone was to trace the history of Walmart’s endeavors in online grocery, they might understand the company being a bit gun-shy when it came to committing to a big grocery delivery initiative. Walmart’s first real experience with selling groceries online at any meaningful scale actually came courtesy of one of its subsidiaries: the UK grocery store chain Asda. And it didn’t go well.
Walmart bought Asda in 1999 for more than $10 billion and would own the chain for two decades, until it sold off a majority ownership stake in the business in 2021 amid a restructuring of its international assets. Asda began offering grocery delivery as early as 1998, but quickly found that its model—delivery from small warehouses—wasn’t financially sustainable and was terribly hard to execute well without regularly disappointing customers. The company’s two warehouses were still processing fewer than five hundred orders a day by 2000,8 while its rival Tesco sped ahead. Asda eventually backed away from the online grocery market altogether in the wake of the delivery abomination, until launching with a new online grocery model in 2011 called Click and Collect—or what Americans might refer to as “buy online, pick up at store.” By the time that service ramped up, though, Asda was staring uphill at far more popular rivals.
“Tesco got first-mover advantage,” Asda veteran and current Walmart International CEO Judith McKenna told me in late 2021. “And once they locked up the loyalty, it’s the devil’s own job to move them on.” (Years later, Amazon would hire one of Tesco’s own to lead a key new grocery initiative.)
Despite trailing Tesco, Asda pushed forward in online grocery since the opportunity was enormous and consumers expected the offerings. When Doug McMillon took over as Walmart CEO in 2014, he traveled to the UK with Walmart board members to witness firsthand Asda’s progress. Some of the company’s innovations included grocery pickup lockers featuring three compartments with different temperature settings—chilled, frozen, and room temp—as well as pickup points inside the London subway system.
McMillon came away impressed and, having decided that online grocery would be a key initiative for Walmart during his tenure, he and his deputies tapped a collection of Asda leaders to relocate to the US. Together, they had one central goal: to build a national online grocery service in the US that finally took advantage of Walmart’s massive store footprint. With Supercenters located within ten miles of 90 percent of the US population, Walmart had the ability to beat Amazon on speed for both grocery pickup and delivery orders—and perhaps could do it more cost-effectively. It was an advantage that Amazon executives had long feared Walmart would identify and leverage, but one that the traditional retailer had long underutilized.
With McMillon as CEO, that began to change. Between 2014 and 2015, two former Asda chief operating officers took on key Walmart US roles. One was McKenna, who had also spent time as Asda’s chief financial officer, giving her expertise into the financial pitfalls that an online grocery business could instigate.
“We made every mistake under the sun,” McKenna said of Asda’s early online grocery initiatives. “But we learned a whole pile.”
The other was an executive named Mark Ibbotson, who quickly developed a reputation as someone employees tried to avoid when standing between him and a goal or task for which he was responsible. Viewed by some as the “muscle” for Greg Foran, CEO of Walmart’s US store business, Ibbotson had a penchant for military analogies that aligned with his execute-by-any-means-necessary mentality.
“He was definitely tough and into power,” one former e-commerce executive told me of Ibbotson, “but he was also really effective at getting stuff done.”
Together, McKenna and Ibbotson made a pact based on their Asda experience in the UK.
“If we ever got a chance to do grocery over again, we’d start with pickup first and delivery second—not the other way around,” McKenna told me.
Prior to the takeover by former Asda executives, Walmart had dabbled in grocery delivery in a couple of test markets with its own delivery trucks. But the results were mostly disappointing, according to one former team member. Walmart was often spending a minimum of $20 per delivery order—an unsustainable cost—and the execution itself left much to be desired. But the Asda executives were confident that the Click and Collect pickup model that was common in the UK could also be popular in the US, considering the nation’s car culture, and the popularity of drive-through restaurants in the suburbs and small rural towns.
Walmart first launched online grocery pickup in early 2014,9 with a small team of e-commerce employees building the online ordering experience, and counterparts in the physical store division overseeing the initiative’s actual real-life execution. The e-commerce team dedicated to the online grocery initiative got to move faster than they were used to at Walmart, in part because they were working separately from the Walmart.com team.
“They gave us a lot of independence,” a former product manager said. “We really believed at the time that we had an opportunity to finally beat Amazon in one area.”
McMillon saw the competitive advantage, too, but he knew he needed a respected veteran leader to bridge the gap between the digital and physical retail teams that the company desperately needed to work well together. He chose Michael Bender, a top store operations executive with a reputation for rallying an organization around a unified goal. McMillon’s goal then, according to Bender’s recollection, was to move Walmart toward a place where it wasn’t “just able to mimic what Amazon is doing” but “to think differently,” too.
The role, which Bender compared to something like a corporate “secretary of state,” was not an easy one. He had to achieve consensus between key leaders on both the e-commerce and store sides of Walmart, on everything from the speed of the rollout to which division got internal credit for online grocery pickup sales. There was also work that needed to be done to convince regional and local store leaders that online grocery could be an advantage for them and the company, rather than a costly distraction.
To help get buy-in from the store managers whose staff would actually handle these orders, Bender and others decided to assign internal credit for online grocery sales to the physical store division, rather than the e-commerce division.
“We tested that and found out that, yes, that gets the attention because the store manager says, ‘If you’re doing something to help me improve my sales, improve my inventory and in-stock position, I’ll listen,’” Bender told me. “‘If you’re doing something that’s against that, or I don’t see the benefit of, then I may not pay as much attention to that.’”
Leaders of the initiative also had to encourage store managers and executives to accept the possibility that online grocery pickup orders might cannibalize more profitable in-store sales. This was not just old-school paranoia; it was plausible, or even likely. But McMillon had stressed his view to his leadership team from the time he named online grocery as a top company initiative.
“Doug was very clear from day one [that] it might cannibalize, but we want to keep customers within our ecosystem,” said Kieran Shanahan, who ran online grocery for Asda in the UK and then was tapped as VP of online grocery for Walmart in the US in 2014.
But as early positive customer feedback and heartwarming customer testimonials accompanied strong financial results and milestones being met, store managers became some of the initiative’s most important internal advocates. And a recommendation from one store manager to another could, in many cases, be more powerful than any top-down directive, even at a company as hierarchical as Walmart.
There were other key decisions, too. One was whether Walmart would charge online customers for the grocery pickup service. After all, the service involved a Walmart associate essentially shopping for the online customer and then bringing the order outside to the customer’s car. The company also had to set up specialized training programs for its workers, utilizing much of the Asda playbook.
As a result, there was a debate over whether the customer should bear any cost, and the company even tested charging a nominal fee. Among those in favor of keeping the service free, though, was McMillon, the CEO. Other leaders responsible for the program also did not want to give customers any reason to avoid trying out the service, especially considering the three stated goals of the initiative: “attract new customers to Walmart, deepen existing [customer] relationships, and then use the service to change perception of Walmart,” according to Shanahan.
It was decided: the pickup service would be offered to customers for free. And once a Walmart store location exhibited consistent performance with its online grocery pickup service, it wouldn’t be that much more work to hand off the order to a delivery person rather than placing the order in a pickup customer’s car.
But before any of that could occur, Walmart first needed to develop the will to make a big play in grocery delivery services, too. Amazon’s blockbuster acquisition of Whole Foods helped provide an impetus. But for better or worse, it would still be executed in the typical Walmart cost-conscious way.
“They settled on the middle ground of ‘We’re going to roll [grocery pickup] out as fast as we possibly can, and we’re going to add delivery,’” an executive familiar with the meeting told me, “‘but we’re not going to go as far as even barely [unprofitable] to drive unnatural growth.’”
Outside Walmart, the rest of the grocery industry was also figuring out how best to react to Bezos’s chess move. Inside CPG conglomerates like the Coca-Cola Company, where the vast majority of sales still came from physical retail stores, there was a newfound appreciation for the strategic importance of online sales.
“That is the first time a lot of people in Coke started taking Amazon seriously,” one source told me.
A crop of young, on-demand delivery companies also found themselves in the spotlight. Instacart, the grocery delivery startup, had counted Whole Foods as its biggest partner, so the Amazon acquisition could have been crippling. But in the wake of the deal, dozens of grocery chain partners desperate for a delivery ally flocked to Instacart and more than made up for Whole Foods’ eventual departure. Instacart competitor Shipt also found itself an increasingly attractive partner for grocery chains. On the day the Amazon/Whole Foods deal was announced, Shipt founder and CEO Bill Smith was on vacation. But not for long.
“People were bouncing back and forth between ‘Is this horrible news, or is this amazing news?’” he told me about fielding the dozens of calls and texts he received about the announcement. “I was in the camp that it was good news, because you couldn’t buy Coca-Cola at Whole Foods. You can’t get Cheerios. Whole Foods doesn’t have the products that most American consumers buy regularly.”
Within two weeks, multiple large grocery chains contacted the startup about partnering with it or acquiring it. One of them was Target. By July the two sides were engaged in acquisition talks, and a deal was reached in the fall. In December, Target announced the deal and said it had paid $550 million in cash to acquire the startup.
“I think when the Whole Foods/Amazon deal happened, it created urgency,” Smith told me.
According to Smith, representatives for his company had a few conversations with Walmart before the Target acquisition, but nothing serious ever came of them. He always figured the Bentonville retailer would build a grocery delivery network on its own.
As for Amazon, Smith said he had a few calls with an M&A employee there prior to the Whole Foods acquisition. But Smith turned down an offer to visit Amazon officials in Seattle to discuss a potential deal more in-depth.
“I think they were just sniffing around for information,” Smith said. “My investors told me they do that with everybody—all kinds of companies. They’ll call them and they want them to come into Seattle and talk to them about the business. And they just take all the information and they use it themselves.”
Prime Dreams
By the time Amazon decided to go all in on Whole Foods, company leaders had made a few key decisions. One was that if the opportunity presented itself, they would be open to acquiring a physical retail chain. For all their progress in transforming online shopping from a niche into common daily behavior, they couldn’t ignore that some 80 to 90 percent of commerce transactions every second of every day still occurred inside physical stores, and they knew the ratio was even more lopsided when it came to fresh groceries. If Amazon wasn’t innovating in physical retail, especially in a retail sector as important to consumers as grocery, was the tech giant really living up to its promise to be the world’s most customer-centric company?
Once that was decided, they made a dream list of potential grocery chain targets. Whole Foods was toward the top, but it seems likely that Trader Joe’s might have been, too. Several company executives had long been admirers of the quirky grocery chain whose reputation for innovative, relatively low-priced packaged foods—not to mention an unusually friendly staff—coalesced into a cult following in communities across the US. Bezos himself had yearned to strike a delivery partnership with the grocer years earlier, when Amazon’s two-hour delivery service, Prime Now, launched, but was denied.
A takeover of Trader Joe’s was never going to happen. And once Whole Foods founder John Mackey felt backed into a corner in the wake of flagging sales and a pot-banging activist shareholder, Amazon was happy to listen—especially considering their own dearth of expertise in organic grocery and refrigerated supply chains.
“When John said he was ready, I think we were all like, ‘Yeah, this just makes sense,’” said Greeley.
One obvious reason a Whole Foods deal made sense for Amazon was that it was simply a grocery chain, and owning a grocery chain offered Amazon a rather old-school solution to its CRaP problem that consumables leader Doug Herrington, and other execs, were so adamant about eventually solving.
“The most important add that we had to make was in support of the very freshest items—the items that were just too low-price to support delivery one at a time,” Jeff Wilke, the longtime Bezos deputy, told me. “And that’s what happens in a grocery store.”
But the Whole Foods chain also possessed another characteristic that made it appear to be a solid fit for Amazon: geographic overlap between its store locations and the cities and towns where a large percentage of US Prime members lived. For that reason alone, Greeley was ecstatic.
“We knew that Prime would be a part of it from the get-go,” Greeley said, “because Jeff [Bezos] had been very supportive of me saying [that] every business in this company needs to have a Prime offering, or a really good rationale as to why not.”
Once the deal was in the works, Greeley immediately set out to brainstorm creative ways to bring the Prime loyalty program to the organic grocer. He had hoped to announce at least one of the new Prime perks alongside the deal’s finalization in late August.
The list included such ideas as reserving five to ten parking spots up front for Prime members at Whole Foods locations; discounts on Whole Foods gift cards on Amazon.com; a 5 percent cash-back offering for Whole Foods shoppers who paid with the Prime Visa credit card; and, just for fun, a free giveaway of prime rib.
In the end, none of the ideas were green-lit before the deal was finalized. Some of them would have required the two companies to work together in-depth prior to the deal closing, which could be deemed an illegal behavior known as “gun-jumping.” Company leaders feared that other ideas would simply give off the appearance of gun-jumping. (The prime rib giveaway never happened, but butchers at a Whole Foods location in California did take it upon themselves to mold ground beef into a Prime logo to celebrate the acquisition closing.)
The Prime Visa card discount was eventually announced about six months after the acquisition closed, in February 2018.10 That same month, Amazon finally unveiled something the whole industry had been waiting for (and fearing, in some cases): free same-day delivery of Whole Foods groceries for Prime members, through the Prime Now rapid delivery service.
Around that same time, Greeley was looking for a new challenge, having run Prime for more than four years. He discussed several ideas for a new role with his boss, consumer head Jeff Wilke, as well as with Jeff Bezos himself, Greeley told me. One of the proposed roles involved overseeing the integration of Whole Foods into Amazon. As Greeley and the Jeffs were kicking around different options, Business Insider published multiple stories, beginning in December 2017, documenting significant stocking issues inside Whole Foods stores.11 The two Jeffs had seen enough, and sent Greeley a note.
“‘I know you’ve been thinking about these four different ideas and we’ve—I mean you’ve—decided that it’s going to be Whole Foods,’” Greeley recalled the note saying, with a laugh.
What the Jeff duo didn’t know at the time was that Greeley was also seriously considering leaving Amazon, having been offered a job by another growing company. Within a few weeks of Greeley’s taking on the Whole Foods role in early 2018, he would accept a top executive role at Airbnb, the home-rental company, to help transform the travel startup sensation into an enduring, large corporation capable of eventually going public. Bezos and Wilke would need to find another leader.
But neither Greeley nor the Jeffs were aware of another company that was training its eye on Amazon executives to help with its own transformation. A company that, twenty years earlier, had sued Amazon for poaching its executives: Walmart.