Amazon on collision course with Wal-Mart

Fernando Stephens
June 19, 2017

Some industry observers say Amazon will find it hard to use Whole Foods to pull away Wal-Mart shoppers because the two stores appeal to different customers.

"The conventional grocery store should feel threatened and incapable of responding", Wedbush Securities analyst Michael Pachter said.

Another reason this deal has better odds of success is that Amazon's customer-centric culture means that it's already blurred the boundaries between "us" and "them".

Amazon's purchase of Whole Foods gives the e-commerce giant a foothold in Canada's grocery industry and could pressure supermarket chains to step up their game in an already competitive environment, experts say. It announced Friday that it's buying online men's clothing retailer Bonobos for $310 million, following a string of online acquisitions including ModCloth and Moosejaw. Breaking into pharmaceuticals, online or otherwise, would involve a whole lot of regulatory wringing that Amazon hasn't had to deal with thus far.

Whole Foods accounts for just 1.2 percent of the United States food and grocery market share, while Amazon has just 0.2 percent, according to research firm GlobalData Retail. None other than John Mackey, Whole Foods chief executive officer, once predicted that Amazon's quest for grocery deliveries would be "Amazon's Waterloo".

"Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy", Bezos said in Friday's statement. Whole Foods has seen its sales slump and recently announced a board shake-up and cost-cutting plan amid pressure from activist investor Jana Partners.

- The first Amazon physical retail store opened in Seattle in 2015, and several more have opened or are in the works.

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"Amazon will redefine convenience", said Bahige El-Rayes, a principal in the retail practice of A.T. Kearney. Lipsky's former law firm has been tapped by Whole Foods' financial adviser, Evercore, to help manage the merger with Amazon, according to Law360. It also is testing same-day fresh and frozen home delivery from 10 of its stores. Shoppers skip the checkout line, and their Amazon accounts get automatically charged.

However, Amazon has been signaling its interest to enter the food industry.

The grocer will continue to operate stores under the Whole Foods Market brand, and Mackey will remain CEO, the companies said. In an email to customers, the company said it planned to maintain the same standards under Amazon, including bans on artificial flavors and colors. The deal is largely being seen as a way for Amazon to move more into the brick-and-mortar space, which is not new for the company.

"This private corporation already dominates every corner of online commerce, and uses its power to set terms and prices for numerous most important products Americans buy or sell to one another", Lynn said.

Amazon boss Jeff Bezos said: "Whole Foods Market has been satisfying, delighting and nourishing customers for almost four decades - they're doing an wonderful job and I want that to continue". The 35-year-old Army aviator, who's stationed at nearby Hunter Army Airfield, said for non-persishable items - and for other products when she's busy - she relies on the mobile app Shipt, which for $100 per year allows her to schedule home delivery of groceries from the local Publix. The curious Amazon Books stores - in cities like New York, Chicago and Los Angeles, as well as Seattle - take a different approach to payments, using bar codes on products and on Amazon's smartphone app to cut down the time customers spend with cashiers.

- Amazon started making Kindle e-readers in 2007 and expanded its hardware to tablets with the Kindle Fire in 2011.

Other reports by BadHub

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