COMPETITIVE BALANCE Experts say Amazon may not disrupt grocery industry overnight with its acquisition of Whole Foods

Pittsburgh Post-Gazette

When Amazon said Thursday that its $13.7 billion acquisition of Whole Foods would close Monday, about two months after the tie-up was announced, the online giant noted, “This is just the beginning.”

The news pushed supermarket stocks downhill in anticipation of Amazon toppling the sector the way it did with bookstores. Grocery chains such as Kroger, Walmart, Target, Costco took a beating on Thursday.

But maybe that sell-off was an overreaction. Indeed, stocks began to recover some losses on Friday.

“Anytime Amazon announces it’s going to do anything, there’s a very predictable impact that is very favorable to Amazon and negative to anyone else,” said Charlie O’Shea, analyst for Moody’s Investor Services. “A lot of it is overblown.”

Mr. O’Shea called the merger “transformative” in the sense that “Amazon needs brick-andmortar to grow in certain product segments.

“I don’t think you can view it negatively for Amazon, even with debt load it will incur to do the deal,” he said. “Amazon needed a brick-and-mortar presence to compete with Walmart, Costco, and others.”

At this stage, grocery delivery is still a niche market, he said. “We don’t necessarily think food delivery is that scalable here, and if it were, you would think the indigenous grocery retailers, such as Kroger, would be doing it.

“It’s a narrow demographic and you need a dense population,” Mr. O’Shea said. “That’s where Amazon is trying to gain some traction.”

While Amazon has disrupted markets when it expands into new territories, supermarkets are a little different, noted Jennifer Bartashus, an analyst at Bloomberg Intelligence. “It’s harder to take market share from grocery stores.”

And food retailers have had time to prepare for competition from the Seattle-based online giant.

“It won’t be simple for Amazon to come into the grocery sector and have a huge disruptive effect immediately,” Ms. Bartashus said. “It will take some time.”

Whole Foods doesn’t have the physical footprint its rivals do. Kroger, Albertsons, Ahold-Delhaize each have a couple thousand stores. Whole Foods has just over 460, she noted. sector, but it noted the merger is hardly the only shakeup in the industry.

For instance, there’s Walmart’s investment in home delivery, partnering with Google for voice-activated shopping from smart home devices and its recently expanded grocery delivery service with ride-hailing service Uber. In addition, there is increased competition from hard discounters such as Aldi and Lidl and more stores enhancing their online options.

It’s all likely to affect sales and compress profit margins over the foreseeable future, Jefferies said.

At Bloomberg, Ms. Bartashus expects more stores to roll out options for shoppers to order their butter and eggs online and pick up the bags at the store. “It resonates well with young families. You don’t have get out of the car or worry about kids putting things in the cart.”

O’Hara-based Giant Eagle has been expanding its curbside pickup, which is now available at 16 stores throughout the region, up from seven in 2016, according to spokesman Dan Donovan.

Giant Eagle’s Market District Express store in McMurray also has seen a good response to its home delivery pilot program, he said.

“The folks who have tried it have done it multiple times and the basket has grown,” Mr. Donovan said. “The home delivery solution is something we are actively looking at when and how to bring it to other area stores.”