Amazon's deal to buy Whole Foods crushes stocks of supermarkets

Fernando Stephens
June 19, 2017

The market reverberations of the announced deal traveled beyond the retail industry - shares of food companies like Hershey and Campbell Soup slid, too.

The supermarket chain will continue to operate stores under the Whole Foods Market brand. Amazon is also experimenting with a "click and collect" model that lets customers buy groceries online and pick them up at new AmazonFresh locations. This deal will put it on the map of the $700 billion grocery market. "It is a tsunami that will shake up and change grocery retailing".

Amazon runs their own online grocery - Amazon Fresh - which started a decade ago in Seattle, Washington. Whole Foods, a pioneer in natural and organic products, has 456 stores, which young, high-end shoppers flock to.

Whole Foods recently had come under pressure from activist hedge fund Jana Partners LLC, prompting it to overhaul its board. It also had been facing increased pressure from rivals offering more organic options.

"There's no value in Amazon keeping the status quo at Whole Foods".

The $42-per-share, all-cash deal, expected to close later this year, includes Whole Foods' net debt and represents about a 27 percent premium to its closing stock price on Thursday.

The aquisition means that Amazon will have further expanded their competition with major retailer-grocers such as Wal-Mart and Target, in addition to competing with traditional grocers and pharmacies.

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Following Amazon's move to plant a bigger stake in the food-selling business, shares of Walmart tumbled 4.6%, making it the biggest loser in the blue-chip Dow Jones industrial average. Shoppers skip the checkout line, and their Amazon accounts get automatically charged.

But Michelle Grant, head of retailing at market research firm Euromonitor, said Amazon could use an obscure part of the Whole Foods portfolio - Whole Foods 365 - to lure Wal-Mart shoppers. Whole Foods will keep operating stores under its name.

"Peter Belanger of Newington, Connecticut, who was shopping at a Whole Foods in West Hartford, said he didn't think he'd be interested in groceries online".

Lastly, Whole Foods offer Amazon reliable and robust consumer off-line data for well-off Americans.

A Whole Food Market is shown in Indianapolis, Friday, June 16, 2017.

"In some ways, it's more of the same than different, at least from the perspective of where we sit as a regional grocery store that has long grown and thrived side-by-side with Amazon Fresh and Whole Foods", Hardy said Friday. You point out that 24 percent of millennials bought something from Whole Foods past year. "We see an opportunity to do a lot more of that", Lore said. And while the deal sent a number of food-related retailers lower, I see Costco Wholesale Corporation (NASDAQ:COST) as the biggest potential victim.

Amazon and Whole Foods take diametrically opposite approaches to pricing.

Other reports by BadHub

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