Amazon has purchased Whole Foods for $13.7 billion, which will allow the online giant to step into the grocery store sector. Amazon officials have stated in the past they want to expand into groceries. From Bloomberg:
Amazon agreed to pay $42 a share in cash for the organic-food chain, including debt, a roughly 27 percent premium to the stock price at Thursday’s close. John Mackey, Whole Foods’ outspoken co-founder, will continue to run the business — a victory after a fight with activist investor Jana Partners that threatened to drive him from power.
Mackey will remain as CEO of Whole Foods.
Cooper Smith, who watches Amazon at research firm L2, explained to The Seattle Times that Amazon “has to get into groceries” if the online store wants “to sustain its current growth rate.”
Smith stated that Whole Foods could become a “potent weapon” with Amazon, especially against Wal-Mart, “which dominates the grocery world and has been stepping up its e-commerce game.”
But stores have not found a way to make grocery shopping online a major success since people want “to pick their own produce” and retailers need to find a way “to deliver perishable, fresh and frozen food to people’s homes.”
Amazon has AmazonFresh, which debuted in 2007, but has not caught on well with the public. Whole Foods gives Amazon “a network of stores where it can implement decades’ worth of experiments in how people pick, pay for and get groceries delivered.” From The Seattle Times:
“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” said Jeff Bezos, Amazon founder and CEO, in a statement. “Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue.”
The move hit the stocks of other grocery chains, including Wal-Mart. From The Wall Street Journal:
Kroger Co. shares fell 12%, Target Corp. shares fell 8.7%, Supervalu Inc. shares fell 15%, Costco Wholesale Corp. shares fell 6.4% and Wal-Mart Stores Inc. shares dropped 5.6%.
The Seattle Times continued:
“For other grocers, the deal is potentially terrifying,” Neil Saunders, managing director of consultancy GlobalData Retail, said in a statement. “Although Amazon has been a looming threat to the grocery industry, the shadow it has cast has been pale and distant. Today that changed: Amazon has moved squarely onto the turf of traditional supermarkets and poses a much more significant threat. The only mitigation is that the more niche appeal of Whole Foods will, at least for the time being, limit the threat to other players.”The grocery market, a $750 billion sector in the U.S., is one of the few provinces in the retail world that Amazon hasn’t managed to radically alter.
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