When Amazon.com Inc.'s $13.7 billion bid to buy Whole Foods was announced, John Mackey, the grocer's chief executive officer, addressed employees, gushing about Amazon's technological innovation.

"We will be joining a company that’s visionary," Mackey said, according to a transcript of the meeting. "I think we’re gonna get a lot of those innovations in our stores. I think we’re gonna see a lot of technology. I think you’re gonna see Whole Foods Market evolve in leaps and bounds."

A major question about the acquisition is what Amazon's technology will mean for those Whole Foods' workers. Will it make their jobs obsolete?

In negotiations, Amazon spent a lot of time analyzing Whole Foods' distribution technology, pointing to a possible way in which the company sees the most immediate opportunities to reduce costs, said a person familiar with the matter who asked not to be identified because the issue was private. Amazon, through a spokesman, declined to comment, as did Whole Foods.

Experts say the most immediate changes would likely be in warehouses that customers never see. That suggests the jobs that could be affected the earliest would be in the warehouses, where products from suppliers await transport to store shelves, said Gary Hawkins, CEO of the Center for Advancing Retail and Technology, a Los Angeles nonprofit that helps retailers and brands innovate. As Amazon looks to automate distribution, cashiers will be safe-- for now.

"The easiest place for Amazon to bring its expertise to bear is in the warehouses, because that's where Amazon really excels," Hawkins said. "If they can reduce costs, they can show that on the store shelves and move Whole Foods away from the Whole Paycheck image."

Advantage of Automation

Amazon sees automation as a key strategic advantage in its overall grocery strategy, according to company documents reviewed by Bloomberg before the Whole Foods acquisition was announced.

Whole Foods has 11 distribution centers specializing in perishable foods that serve its stores. It also has seafood processing plants, kitchens and bakeries that supply prepared food to each location. Those are the places where Amazon could initially focus, according to experts.

Amazon has its own network of warehouses around the country with an abundant assortment of goods, and there are thousands of robots in those facilities. As Amazon's business has grown, its warehouses have become more specialized. Most inventory is in its largest warehouses within driving distance of big cities, but as it tries to deliver products faster, the company is utilizing smaller delivery hubs in cities packed with the kind of products people want quickly, like a phone charger or a toothbrush you forgot to pack on a trip.

Adding robots to warehouses hasn't dented Amazon's hiring spree. The company had 351,000 employees at the end of March, up 43% from a year earlier. CEO Jeff Bezos in January pledged to hire 100,000 new workers over the next 18 months, coinciding with pressure from President Donald Trump on U.S. companies to create jobs.

Amazon has not had the fresh food sales volume to justify big investment in refrigerated warehouses. Whole Foods gives them an incentive to reinvent how groceries get to your store and doorstep.

Brittain Ladd, a supply chain consultant who spent two years working on Amazon's grocery push, said Amazon may be considering building a network of automated warehouses designed for the grocery business. These would likely be 1 million square feet -- large enough to serve Whole Foods and Amazon's various other grocery initiatives like Amazon Fresh and Prime Pantry -- and would utilize robots and automation to reduce labor costs, he said.

"The goal will be to create as advanced a distribution capability as possible to provide customers with exceptional service and the freshest of fresh produce, vegetables, and meat," Ladd said. "Amazon will win the battle against Wal-Mart by winning with fresh food.

A big challenge for Amazon will be applying its logistics know-how regarding durable, long-lasting products like books, toys and tablets to delicate perishables like strawberries and steaks that have to be handled gingerly, stored at different temperatures and inspected frequently for signs of spoiling.

After automating warehouses, Amazon may bring the robots to the stores. But don't expect them to replace cashiers immediately. The first ones will likely navigate aisles to check inventory and alert employees when items run low, said Austin Bohlig, an advisor at Loup Ventures, which invests in robotics startups.

"These robots can operate alongside people inside a store, but Amazon will want to make absolutely sure they are safe," he said.

Different Model for Stores?

Amazon is experimenting with a smaller urban convenience store concept in Seattle called AmazonGo that lets shoppers check in with smartphones, grab what they want and leave without going to a cash register. They are billed automatically based on what they pluck from shelves.

Amazon said it has no plans to introduce that technology to Whole Foods, though a person familiar with the matter said the company is considering eliminating cashiers as part of its long-term grocery strategy. The person asked not to be identified because they were not authorized to speak on private matters.

Amazon has good reason to move slowly with automating tasks now done by people. The United Food and Commercial Workers Union, whose 1.3 million members mostly work in supermarkets, has had its eye on Whole Foods for years, said David Pryzbylski, an employment lawyer with Barnes & Thornburg, LLP who has represented supermarkets in union-related cases. Whole Foods has kept unions at bay by paying good wages and avoiding mass layoffs, he said.

"If there's an environment of uncertainty, like layoffs due to automation, unions can play on that fear," Pryzbylski said, and make inroads in unionizing the workforce.

Source: Material Handling & Logistics

By: Spencer Soper and Alex Sherman