28 June, 2017
Some small and mid-sized food makers wonder: How might Amazon's planned purchase of Whole Foods affect me?
As CEOs Jeff Bezos and John Mackey look to seal their disruptive supermarket deal, many rival companies' stocks have traded off, some posting double-digit declines on the Amazon-Whole Foods news.
Because of this business model, Amazon could simply choose to accept lower profit margins than Whole Foods Market did as an independent chain, in order to "supercharge their grocery delivery ambitions", according to the analysis.
Shares of Goldman Sachs have fallen 0.7% to $224.60 at 10:00 a.m. today, while Morgan Stanley has dropped 0.9% to $45.30.
"Competing with Amazon is terrifying for any incumbent business because the company's executive team operates on a radical model whereby the company's overall net income is almost zero quarter after quarter", CNBC reports.
In addition, industry insiders note that the sale will not just reduce prices at the chain but also increase the reach of Whole Foods Market's organic products across the country. Given the recent underperformance in its shares, we find GS particularly interesting, as it advised Amazon and is leading its debt deal. In all of its brick-and-mortar formats, which now include seven AmazonBooks stores and two AmazonFresh pickup sites, the company does not accept cash, preferring to rely on credit cards and payments through the Amazon app instead.
The data Amazon collects will likely help it decide which of its growing roster of private-label brands to expand and which new ones to launch, especially when it comes to consumables and food.
"How consumers purchase in stores is drastically different from online", said Kevin Howard, CEO of Adroit Worldwide Media Inc., a retail-technology provider that has worked with companies including Whole Foods.
Amazon has spent time experimenting with brick-and-mortar already. Amazon and Whole Foods can join their online and in-store knowledge to better predict what goods to carry in each store, said James Thomson, a former senior manager in business development at Amazon and now partner at the brand consultancy Buy Box Experts.
The acquisition will have left all such retailers questioning their existing strategies, which Rigby suggested have been built on questionable premises, including the idea that they can add digital capabilities faster than Amazon can add stores and that Amazon's competitive space of e-commerce accounts for only around 8% of U.S. retail sales.
"Amazon will give them the support they need, the financial stability, and Amazon will add to what they're now doing", says David, owner of Goleta, California-based Outer Aisle Gourmet.
"It would be such a radical change if the company didn't go in that direction", said Barnhart, whose company, The Zen of Slow Cooking, is based in Lake Forest, Illinois.
Wall Street analysts say Whole Foods could fetch a significantly higher price for investors and that a bidding war could still erupt. He said this could be the start of something even bigger. Whole Foods now partners with, and is also an investor in, Instacart, and it's unclear what will happen to that partnership once Amazon takes over.
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The middle-market players (into which Hertel said he was surprised to learn they lumped No. 1 supermarket chain Kroger) will need to differentiate themselves quickly or go the acquisition route to bulk up, he said they told him.
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