Amazon Still Doesn’t Understand Brick-and-Mortar Retail

(Bloomberg Opinion) — On the day Amazon.com Inc. announced it would acquire Whole Foods for almost $14 billion in June 2017, the grocer’s employees crowded into the company’s Austin headquarters to meet their new boss.

John Mackey, Whole Foods Chief Executive Officer at the time, introduced Jeff Wilke, Amazon’s Worldwide Consumer CEO, who was doing his best to connect with his foodie audience. “This morning we sat and had breakfast, watching the sunrise over this beautiful city, while eating quinoa, blueberries, and some other vegetables…”

Mackey jumped in to correct the record: “Those aren’t vegetables. That’s okay. We’re learning.”

I was describing the deal, and this moment struck me as the perfect analogy for why the online giant needed Whole Foods: Amazon was good at a lot of things, but it knew nothing about the food business.

Now, as the company plans to close 57 Amazon Fresh and 15 Amazon Go stores(1), there’s a big question about whether, after more than eight years, it’s really learned much from Whole Foods about how to run a real brick-and-mortar store that sells not just groceries but everything from avocados to Za’atar.

“They admit they don’t do brick-and-mortar retail,” says Errol Schweizer, Whole Foods’ onetime grocery manager who left the company in 2016. “I don’t think they understand the human side of this.” Last year, in his subreddit “The Checkout,” he described Amazon Fresh stores as soulless, neutered, and unimpressive; He imagined what it would be like if a store was designed and managed by artificial intelligence.

In its announcement, Amazon acknowledged that it “has not yet created a truly differentiated customer experience with the right economic model needed for large-scale expansion” with its branded physical grocery stores. It is said that some of these areas will be converted to Whole Foods.

The problem seems to be that Amazon has spent more time injecting its cost-cutting ethos into Whole Foods than it has spent absorbing Whole Foods’ expertise as a leading food retailer. According to the Wall Street Journal reporting last year, Amazon was testing how to sell products like Coca-Cola at Whole Foods as it tried to protect Whole Foods’ image as a purveyor of healthy products. It cut staff and centralized the once famously regionalized operations of Whole Foods; The kind of changes that make people “very conscious of the Amazonization of Whole Foods,” one employee told the Journal.

The changes have yet to translate into the industry-shattering results Wall Street expected from the deal. Amazon says Whole Foods’ sales have increased more than 40% since the acquisition; This roughly translates into a not very impressive figure of 4% per year on average.

But Fresh and Go’s demise shouldn’t be taken as an admission that the company has given up on its quest for grocery dominance or that it thinks the category is unimportant. Food remains critical to Amazon’s success, and not just because of the size of the market. As I wrote for Fortune at the time:

The very thing that makes grocery delivery difficult—food spoilage—is why it’s so attractive to a company like Amazon. Because cheese gets moldy, meats go rancid, and milk goes rancid, consumers can’t hoard cheese in their cupboards or refrigerators indefinitely like they can toilet paper or laundry detergent. As a result, the average family goes to the supermarket at least once a week; There is nothing else you buy or consume as frequently. For Amazon, getting on this frequency is critical for it to become more ingrained in our routines and behaviors.

This seems to be happening for Amazon in the delivery space, too. The company introduced the option to add perishable items to customers’ same-day delivery orders in some markets last year; It is stated that this service increased 40 times in a one-year period. It’s also testing fresh food delivery in 30 minutes or less. This is what Amazon does best.

Meanwhile, the company has announced plans to open a supercenter, which raises the question of whether Amazon has truly learned its bricks-and-mortar lesson. A big-box store is a much more complex endeavor than what Go and Fresh is trying to achieve. The company also said it plans to open more than 100 new Whole Foods stores over the next few years. The best thing Amazon can do to ensure its success is to let Whole Foods be Whole Foods. He might actually learn something this time.