Amazon buying Whole Foods
Online giant’s takeover could shake up grocery industry
NEW YORK — Amazon is buying Whole Foods in a deal valued at about $13.7 billion, a stunning move into brick-and-mortar retail that sets the stage for more radical store experimentation and intensified competition with grocery rivals.
The deal unites the online juggernaut with the grocery store chain that fell behind as the organic and natural foods it helped popularize expanded to more locations and shoppers found “good enough” alternatives.
Amazon already offers grocerydelivery services in five markets, but the Whole Foods purchase would let it expand to many more.
The deal has the possibility to be “transformative,” Moody’s lead retail analyst Charlie O’Shea said in a note, “not just for food retail, but for retail in general.”
The “implications ripple far beyond the food segment, where 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.
Online delivery of groceries so far has been tough for any company to pull off because of customers’ concerns about the quality of meat and produce, Wedbush Securities analyst Michael Pachter said. But if customers know that what they are getting is the same as what they’d get at the local store, they are more likely to try it out.
He said that even if Amazon gets 20 million members of its Prime loyalty program to pay $15 a month extra for AmazonFresh grocery-delivery service, that’s 20 million not going to traditional supermarkets. He added that these are likely the higher-income households who tend to buy more expensive brands and cuts of meat.
“The conventional grocery store should feel threatened and incapable of responding,” Pachter said.
And because customers can buy foods and bulk items like toilet paper from a single retailer, discount retailers such as Costco, Target and Walmart should feel threatened, too.
The deal comes a month after Whole Foods announced a board shake-up and cost-cutting plan amid falling sales and pressure from activist investor Jana Partners. It also had been facing increased pressure from rivals offering more organic options, 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.
Pressure from activist investors got so high that Whole Foods CEO John Mackey told Texas Monthly magazine recently that “they’re greedy bastards, and they’re putting a bunch of propaganda out there, trying to destroy my reputation and the reputation of Whole Foods.”