Amazon to buy Whole Foods for $13.7B
“The conventional grocery store should feel threatened and incapable of responding,” Wedbush Securities analyst Michael Pachter said.
Moody’s lead retail analyst Charlie O’Shea said the deal could be “transformative, not just for food retail, but for retail in general.”
“For the entire industry, this was a big wow,” said Phil Lempert, grocery store analyst who runs the Supermarket Guru website. “This is really a game-changer for the entire industry.”
Shoppers may also see lower prices at Whole Foods, which has been dubbed “Whole Paycheck” over the years for its higherthan-average prices. As one example of price difference, a 12-pack of lemon-flavored LaCroix sells on Amazon for $4, compared to $5.69 at Whole Foods in Chicago.
“We’re going to see lower prices and more efficiency. ... It’s going to up the game for all grocery retailers,” Lempert said.
Amazon already offers grocery-delivery services in five markets, but analysts say expansion is tough because its current distribution centers are set up for dried goods, not perishables. Just two years ago, Whole Foods CEO John Mackey told Bloomberg BusinessWeek that Amazon’s foray into grocery delivery would be “Amazon’s Waterloo.”
But it was Whole Foods that fell behind as shoppers found “good enough” alternatives to the organic and natural foods it helped popularize.
Founded in 1978, Whole Foods has seen its sales slump and in February said it no longer saw the potential for expanding its flagship chain to 1,200 locations, up from about 460 in the United States, Canada and the United Kingdom. It also had announced a board shake-up and cost-cutting plan.
Groceries are already a fiercely competitive business, with low-cost rivals like Aldi putting pressure on traditional supermarket chains and another discounter, Lidl, opening its first U.S. stores this week on the East Coast. Whole Foods itself had launched an offshoot chain named after its “365” private label brand in a nod to the popularity of no-frills chains.
The Amazon-Whole Foods combination could put even more pressure on those chains and other big grocery sellers. Walmart, which has the largest share of the U.S. food market, has been working on lowering prices, while Target has been struggling to turn around its grocery business.
Amazon could have built up its groceries business without acquisitions, but that would have been costly and time-consuming, said Neil Saunders, managing director of GlobalData Retail.
With Whole Foods, Amazon gets an established business that it can transform through its technology and supply network expertise. And it should be able to bring cost-cutting technologies, such as robots to move inventory around, while the company gets a better picture of customers by marrying data from Amazon and Whole Foods’ loyalty programs.
“Dominant players like Walmart, Kroger, Costco, and Target now have to look over their shoulders at the Amazon train coming down the tracks,” O’Shea said.
Mackey will stay as CEO, and the headquarters will stay in Austin, Texas.