19 June, 2017
Amazon said on Friday that it had agreed to buy the upscale grocery chain Whole Foods for $13.4 billion, as the online retailer looks to conquer new territory in the supermarket aisle.
The online giant previous year declared its plans to open a physical grocery store called Amazon Go, a market without cashiers where consumers would be automatically charged based on the items they placed into their shopping bags. Amazon would be dealing with perishable food, non-perishables, and consumer products. It implies a trailing 12-month price-to-earnings multiple for Whole Foods of 31 times, versus a 14.4 average for the S&P 500 Food Retail index.
Amazon is buying Whole Foods in a deal valued at about $13.7 billion. "Barclays put an upside value on Whole Foods of $57, which has probably encouraged investors to bet on at least one more raise of the paddle".
Founded in 1978 in Austin, Texas, Whole Foods Market is the leading natural and organic foods supermarket, the first national "Certified Organic" grocer, and uniquely positioned as America's Healthiest Grocery Store™.
In the USA "this adds 440 refrigerated warehouses within 10 miles of probably 80% of the population", said Michael Pachter, an analyst for Wedbush Securities.
The Amazon Go pilot store allows customers to choose items and then pay the bill automatically by just walking out of the store, all without going to a cash register.
Backed by its delivery network, it has entered the US grocery market in recent years with limited success under a brand name known as AmazonFresh.
Grocery shopping - you either love it or hate it. Whole Foods will keep its brand and John Mackey, its current CEO, will remain in place.
"Maybe feels hyperbolic but I think it could be one of the biggest acquisitions in the last 20 years in terms of the ability to kind of bring together technological innovation and this sort of physical footprint that Whole Foods has", Bunch said. The grocery store operator was also under pressure from activist investor Jana Partners. And the company has launched an offshoot chain named after its "365" private label brand, a nod to the popularity of no-frills chains that draw shoppers with low prices.
Last Friday, when Amazon announced the acquisition, shares of Walmart as well as Target, Kroger, and Costco all tumbled.
"It is hard to say what Amazon's online strategy will be for Whole Foods", she said.
Amazon is considering extending the cost-cutting effort with the no-checkout technology it's developing at its Seattle convenience store, "AmazonGo", according to the person familiar with the matter, who asked not to be named because the plans are private. He's got professional respect for Amazon for how efficiently and successfully it runs its business.
Shares of some major retailers that have entered the grocery world also fell.
Walmart and Amazon have had their sights on each other for years, each aiming to be the dominant seller of goods - however consumers of the future want to buy them.
Cooper Smith, head of Amazon research at L2, said it's likely that Instacart will be the loser in Friday's deal.
Amazon stocks rose 2.4 percent to close at $987.71. But she would never buy food online, she said.
"Make no mistake, Walmart under no circumstances can lose the grocery wars to Amazon", said Brittain Ladd, a strategy and supply chain consultant who formerly worked with Amazon on its grocery business.
Meanwhile, in a letter to its customers, Whole Foods Market, Inc. It was recently granted a patent for technology that would block shoppers from comparing prices using their mobile devices while they are in stores.
Some also speculated that a European grocery conglomerate could come knocking on Whole Foods' door, though Amazon's growing power would make it a formidable competitor to take on.
"I don't have to leave the house and they pick the produce very well", Garvey said.
"Amazon is an innovative company and we are excited about our partnership. Either way, it's good for consumers like myself", said Di Wu, a NY resident in her early 30s who is a member of Amazon's Prime fast-shipping club and who shops at Whole Foods at least twice a week.
