Amazon, Whole Foods, Free-markets

 

 

 

 

 

 

 

 

 

 

In a capitalist free-market system competition does two major things; it brings down retail prices and creates innovation. For we consumers this is a real blessing. By example I always bring up the telephone monopoly created by the government that when deregulated brought us cell phones and the internet. All the technology we have today with smart phones came expressly because competition brought it. Now, I also have as a word of caution as I also always bring up, especially here in the Socialist State of California, the deregulation of energy. But there is a real difference between the two. The deregulation of the telephone companies came when there was growing new technology that was already bleeding into the marketplace. Regarding the California deregulation that took production of energy and made companies like SCE sell it off leaving them with distribution only, and made it impossible for them to upgrade their plants, not because new technology was bleeding into the system but because politics wanted other, so-called renewal energy sources to develop. None of those systems, like wind and solar, while producing some energy is not even close to being a real replacement. We were promised lower energy costs with this new energy. Today, years and years later I’m still with the same energy company and my prices have not gone down. And they, especially the wind machine are killing birds, including endangered birds, but because it is politically driven now killing birds is okay. But this is fodder for another time.

Amazon recently purchased Whole Foods, a supermarket chain featuring “foods without artificial preservatives, colors, flavors, sweeteners, and hydrogenated fats.” With the merger of two small such stores in Austin, Texas, in 1980 Whole Foods was born. “As of September 2015, it has 91,000 employees and 431 supermarkets in the United States, Canada, and the United Kingdom, and has its main produce procurement office in Watsonville, California.” (Wikipedia article on “Whole Foods Market”.)

For a while Whole Foods was on a whirlwind as healthy conscious consumers flocked to their stores. But business began a downturn. Healthy food is expensive and the prices at Whole Foods stayed high when shoppers were seeing their discretionary money decrease making shopping at health food stores like Whole Foods less attractive. Also, a number of controversies hit the supermarket (you can read about them in that article) making it venerable for a takeover (because it was now a pubic company). But this is also fodder for another examination.

My purpose here is to look at the free-market system, which I wholeheartedly believe in, but around the edges can be problematic. Understand this, progress, which we cannot stop, will take some winners of the past and make them losers in the future. It will also take losers in the now and make them winner in the future, as well as new winners we never thought of. When we try to stop progress we only create a great mess. We can help shape progress.

Amazon, like Google, wants to be Master of the Universe. While I personally limit my exposure to Google by only using their search engine, I’m into Amazon up to my hips. I’ve always hated shopping so what fun it is to sit here in my recliner (no, I have clothes on), open my computer, go to Amazon and order whatever I want and have it delivered to me. Yeah, I know, I’ve gotten lazy in my old age. I can live with this. I’m not into their foods, yet, but when I feel it’s right for me chances are I will go there, too.

Amazon has found a successful model for business: begin a service with low prices to reign in shoppers, to capture the market. The idea is, and this is the reason for superstores like Walmart, get the shopper in for one thing, then because you have so much else they will expand on what they purchase because it’s there.

Having purchased Whole Foods, which had high prices to begin with, Amazon is going to drop prices to pull customers in, both returning customers and new ones. They are also going to add it to their home shopping service.

There is a phrase, “corner the market,” that applies here. Cornering the market is just short of becoming a monopoly, the latter illegal, the former skirting close to it. In this case, the market is groceries. Whole Foods tried to corner the market in terms of “healthy” foods. It worked for a time, then didn’t.

In the past, supermarkets like Safeway and Ralphs, Albertson, and many others did the same thing, created a larger store with thousands of food and other non-food items to purchase taking business away from the mom and pop grocery stores and putting them out of business. And now these superstores are in danger, not just because of the competition from Walmart and now Amazon, but because having become the big dog in the community competition took a back seat. Include in their problems that unions drove up the cost of doing business causing the stores to raise their prices to the point that consumers were looking for cheaper prices. Those came with Walmart and Target and now Amazon. It’s a dog eat dog world. But this isn’t a systemic fault of free-markets, it’s the natural flow of progress.

Could Amazon have stayed out of the food business? Yes, but they want to be king of the world and the only place you go for everything. Did Whole Foods management not understand the flow of progress so failed to anticipate and make changes to meet progress putting them in danger? Yes, as has so many other businesses in other markets (The Wherehouse for videos comes to mind). When they did wake up it was too late (much like Kodak).

The government has a right to protect us from monopolies, but around the edges things aren’t so clear. Large companies like Amazon can afford to for a time take a loss to later gain a greater profit. These are games played throughout history, and overall, consumers have won. What losses come about are more about progress than capitalism.

The alternative, which I won’t go into here, is a managed economy and history has shown there are no winners in a managed economy, just losers.