Amazon still doesn't understand brick-and-mortar retail

The day Amazon.com Inc. announced in June 2017 that it was acquiring Whole Foods for almost $14 billion, employees of the natural grocer packed into the company's Austin headquarters to meet their new bosses.

John Mackey, the Whole Foods Chief Executive Officer at the time, introduced Jeff Wilke, Amazon's CEO of Worldwide Consumer, who tried his best to connect with his foodie audience. "As I was sitting this morning, eating breakfast, watching the sun rise over this beautiful city-by the way, quinoa, blueberry, and some other vegetables…"

Mackey jumped in to correct the record: "Those aren't vegetables. That's okay. We're learning."

I was covering the deal, and this moment read to me as the perfect analogy for why the online behemoth needed Whole Foods: Amazon was good at many things, but it didn't know a thing about the food business.

Now as the company plans to shut down its 57 Amazon Fresh and 15 Amazon Go stores(1) , there's a big question as to whether more than eight years later it has really learned much of anything from Whole Foods - not just about food but about how to run an actual physical store that sells everything from avocados to Za'atar.

"They're admitting that they don't get (brick-and-mortar) retail," says Errol Schweizer, one-time head of grocery at Whole Foods who left the company in 2016. "I don't think they understand the human aspect of it." Last year, he described Amazon Fresh stores on his Substack "The Checkout" as soulless, neutered and radically unimpressive - what he imagined a store would be like if it was designed and managed by artificial intelligence.

In its announcement, Amazon acknowledged that it hadn't "yet created a truly distinctive customer experience with the right economic model needed for large-scale expansion" with its branded physical grocery stores. It says some of these spaces will be converted into Whole Foods.

The problem seems to be that Amazon spent more time injecting its cost-cutting ethos into Whole Foods than it did absorbing Whole Foods' expertise as a leading food retailer. The Wall Street Journal reported last year, Amazon has been testing how to sell products like Coca-Cola in Whole Foods while trying to maintain Whole Foods' image as a purveyor of healthy goods. It has cut staffing and centralized what were once Whole Foods' famously regionalized operations - the kinds of changes that one employee told the Journal has made people "very aware of the Amazonification of Whole Foods."

The shifts have not yet translated into the kind of industry-shaking results Wall Street expected from the deal either. Amazon says Whole Foods' sales have grown by more than 40% since the acquisition, which translates roughly into a not very impressive 4% a year on average.

The winding down of Fresh and Go should not be taken as an admission, however, that the company is abandoning its quest for grocery dominance, or that it thinks the category is unimportant. Food is still critical to Amazon's success, and not just because of the size of the market. As I wrote at the time for Fortune:

The very thing that makes grocery delivery hard-that food goes bad-is the reason it's so desirable to a company like Amazon. Because cheese grows mold and meat goes rancid and milk sours, consumers can't hoard it in their cupboards or refrigerators indefinitely as they might toilet paper or laundry detergent. As a result, the average family hits the supermarket at minimum once a week; there's nothing else you purchase or consume so much or so often. For Amazon, getting in on that frequency is critical to further ingraining itself in our routines and behaviors.

This does seem to be happening for Amazon in the delivery space. The company rolled out an option for customers to add perishables to same-day delivery orders last year in some markets - a service it says has grown 40-fold in a one-year period. It's also testing fresh food delivery in 30 minutes or less. This is the kind of thing that Amazon does best.

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

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(1) Amazon Fresh and Amazon Go are the company's Amazon-branded grocery and convenience store concepts, respectively. Both formats were launched after the Whole Foods acquisition, target more mainstream shoppers compared to Whole Foods and make heavy use of technology.

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Beth Kowitt is a Bloomberg Opinion columnist covering corporate America. She was previously a senior writer and editor at Fortune Magazine. Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times.

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