Amazon's deal to buy a United States grocery chain signals a significant threat to food retailers. I wonder how many companies are going to be in America in, like, 50 years, whether it's just going to be, like, 10 huge companies.
The Journal said buying Whole Foods allows Amazon to quickly grab a bigger portion of the estimated $674 billion US market for edible groceries, according to consulting firm Kantar Retail. The deal is expected to close in the second half of 2017 pending regulatory approval, the company said in a news release Friday.
Armed with giant warehouses, shopper data, the latest technology and almost endless funds - and now with Whole Foods' hundreds of physical stores - Amazon is set to reshape a US$800 billion grocery market that is already changing rapidly. Whole Foods chief executive John Mackey would remain CEO after the purchase, and the company would keep its headquarters in Austin.
The deal is sure to put new pressure on Walmart, which has been aggressively expanding its online business in hopes of winning over consumers. Amazon's stock, which recently traded over $1,000 for the first time, rose $23.54, or 2.4 percent, to close at $987.71. Kroger Co shares fell 9.2 percent, while Walmart stores Inc saw a loss of 4.7 percent.
Why would Wall Street push shares of Whole Foods higher than the offer price on the table? Amazon is going to lead the grocery pack in delivering an Omni channel experience to customers far quicker than the traditional grocery store. Whole Foods is courting the discount shopper with its lower cost brand 365. Whole Foods doesn't have a similar footprint but it is popular in this more affluent areas that Amazon likes.
Whole Foods becomes a convenient place for Amazon customers to pick up items they ordered so they do not have to wait for delivery.
ALINA SELYUKH, BYLINE: It's lunch hour, and people are dipping in and out of a Whole Foods store in Washington, D.C. This particular shop has only been open for three months, but the chain's brand has had nearly 40 years to grow. That is the eighth Amazon bookstore now open around the US and more are expected in the future. Both companies said there will be no layoffs, but did not respond to other questions about Amazon's plans for Whole Foods.
Whole Foods, founded in 1978, has struggled to differentiate itself as competitors also now offer a plethora of fresh and organic foods.
Inside the stores, Whole Foods customers could see big changes, including easier checkouts. This would be Amazon's largest acquisition if the deal is done.
Paul Cuatrecasas, of Aquaa Partner, a London-based investment bank specializing in mergers and acquisitions research, said the deal "should leave no doubt" about how serious Amazon is about dominating all aspects of the retail market.