Amazon stumps up nearly $US14B for Whole Foods Market

Author

25 June, 2017

Whole Foods was quick to point out, in a statement, that its stores will continue to operate under the Whole Foods Market brand, that its headquarters will remain in Austin, Texas, and that John Mackey will stay on as CEO.

Amazon already offers grocery-delivery services in five markets, but the Whole Foods purchase would let it expand to many more.

Amazon already does some grocery deliveries through Prime and some other programs, but has the chance to boost home deliveries of Whole Foods' "365 Everyday Value" products and potentially "transform the physical retail experience" through checkout-free shopping, according to JP Morgan Chase.

Amazon runs their own online grocery - Amazon Fresh - which started a decade ago in Seattle, Washington.

The deal still needs to gain regulatory approvals and is subject to a Whole Foods shareholders vote.

The definitive merger agreement means Amazon will pay $42 per share in an all-cash transaction, and take on Whole Foods Market's net debt.

But despite the Whole Foods acquisition and, by extension, the potential technology Amazon could implement in brick-and-mortar outlets, the company said it now has no plans to automate the jobs of cashiers in Whole Foods stores after the acquisition.

Whole Foods, founded in 1978, has struggled to differentiate itself as competitors also now offer a plethora of fresh and organic foods.

The deal sent shockwaves across the food distribution market, as Whole Foods' peers and supermarket chains grappled with the prospect of having to compete with Amazon's massive buying power and ability to sell goods at a lower cost. To put the Whole Foods purchase price into some kind of context: Sainsbury's is now valued at £5.5bn and has over 1400 United Kingdom stores.

Several workers expressed relief and happiness about the planned sale, which came as Whole Foods faced pressure from hedge fund investor Jana Partners to improve results. Traditional grocers like Safeway and Kroger are particularly vulnerable to an aggressive play by Amazon into the grocery sector. Investors are likely anxious that Amazon, once entrenched in the physical grocery store business, will ruthlessly cut prices for food products like it did with books.

But if Amazon can be the one-stop shop for everything - groceries had been one of the key missing elements - customers would have even less of a need to go to Walmart or elsewhere. The deal on the surface seems valuable for stakeholders in both companies. When they take something off the shelf and put it in their cart, it registers in their account. And the key measure that retailers look at to gauge their health, revenue at stores open more than a year, has fallen for seven quarters in a row. It's expected to close in the second half of 2017. "Whole Foods is expensive enough".

"This is an natural disaster rattling through the grocery sector as well as the retail world", said Mark Hamrick, senior economic analyst for Bankrate.com.


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