24 June, 2017
Online retail giant Amazon announced on Friday that it had reached a definitive agreement to acquire Whole Foods Market for $13.7 billion.
The grocer will continue to operate stores under the Whole Foods Market brand and John Mackey will remain as its chief executive officer, the companies said.
Amazon already offers grocery-delivery services in five markets, but the Whole Foods purchase would let it expand to many more.
News of the deal sent shares of traditional retailers such as Walmart, Target, Costco and Kroger tumbling as much as 13 per cent as investors tried to digest the implications of an Amazon-backed grocery chain. This would give a substantial boost to Amazon's services for one- and two-hour Prime Now delivery, as well as its Fresh grocery delivery service, both of which are available in Boston.
"I anticipate that Amazon should be able to lower the cost of Whole Foods and better enable them to compete in that market and start to bring some of those great organic products that people have liked without necessarily having to capture their whole pay check", he said.
Any number of Whole Foods locations - more than 460 in the U.S., Canada and Britain - could be used as jumping off points for wider delivery and pickup of groceries and prepared foods ordered online. Stocks of supermarket chains fell in the news of the Amazon-Whole Foods deal, and Tarrant says the pressure on the competitors will get more intense with time. That $42 per share offer for the upscale supermarket chain is a 27 percent premium on Thursday's closing price.
Companies in the food business, he adds, are also under attack from another recent entry into the US grocery pace, German grocer Lidl. It also had been facing increased pressure from rivals offering more organic options. It's easy to imagine that Amazon might later decide to integrate this technology from its warehouses to its Amazon Go shops, and probably Whole Foods stores, too.
That said, there is some speculation that Amazon could end up changing its plans and ultimately use advanced technology inside Whole Foods stores.
The company has demonstrated an interest in the retail grocery store space for some time.
"It is hard to say what Amazon's online strategy will be for Whole Foods", she said.
Some customers said they believe Whole Foods shoppers will quickly adapt if Amazon does widen the online grocery shopping experience.
Instinet analyst Anthony DiClemente said in a note quoted by CNBC that Amazon is going to disrupt grocery business. That is the eighth Amazon bookstore now open around the USA and more are expected in the future.
Whole Foods' conversations with banks took place before the company was approached by Amazon, so Goldman was also vying for a role with Whole Foods. The store uses sensors to track items as shoppers put them into baskets or return them to the shelf. 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. The deal is expected to close during the second half of this year.
When it raised $400 million in March, Instacart said it operated in 35 markets and had 135 partnerships with grocery retailers around the country.
