Amazon gobbles up Whole Foods: Grocery trade impact and analysis

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Amazon’s $13.7 billion
 proposed acquisition of Whole Foods rocked the grocery industry last week. We’ve got a wide range of Industry opinion, expert analysis and perspectives on the deal and what it means for the US grocery trade.

CNBC reported that shares of Whole Foods jumped 28% on news of the proposed Amazon acquisition. Cowen and Company reports 12% of US consumers bought groceries online in 2016. CNBC also called Amazon’s plan “a brilliant acquisition” and “a slam dunk.” The acquisition news had a big impact on retail and grocery stocks, causing a huge drop in share value of tens of billions of dollars. Kroger shares dropped 11% and Walmart was down 5% while Costco and Target each slipped 6%.

Business Insider reported the curious inside story on how the deal went down from CEO John Mackey’s company town hall meeting announcing the deal to Whole Foods employees. Market Watch says the Amazon acquisition is a great example of how fast disruption can happen to an industry. With the acquisition, Amazon gets 11 large food distribution warehouses across the US, in addition to the potential to reach hundreds of upscale markets and consumers already customers of Whole Foods.

Wedbush Securities analyst Aaron Turner says GrubHub could be the next perfect food and grocery acquisition for Amazon. Walmart may be heavily impacted by the acquisition of Whole Foods 365, the less expensive division of Whole Foods. Could the proposed acquisition become a political football and antitrust issue? One thing’s for sure, there’s no love lost between Donald Trump and Jeff Bezos who also owns the liberal Washington Post.

Amazon is buying Whole Foods in a deal valued at $13.7 billion of Whole Foods Market rocketed 28 percent on Friday after Amazon said it plans to acquire the grocery store chain for $42 a share, in a deal valued at $13.7 billion. Amazon’s offer represents a 27 percent premium to Whole Foods’ closing price on Thursday. With Whole Foods shares trading around Amazon’s offer price, investors appear to be speculating that another suitor could make a play for the grocery chain.

Whole Foods has been under pressure from activist investor Jana Partners and money manager Neuberger Berman, which have called on Whole Foods to sell itself. The investors have criticized Whole Foods for its poor performance and have suggested the chain could be merged with another grocer.

Amazon has long been pushing to expand its online grocery business, seeing it as an emerging opportunity. Currently, few people purchase their groceries online even as more shoppers switch to buying other goods that way. About 12 percent of U.S. grocery shoppers bought their groceries online at some point in 2016, according to Cowen and Company. Via

Amazon buying Whole Foods is a no-brainer slam dunk have not done a rigorous financial analysis of Whole Foods. I haven’t even bothered to look at its margins, or how much revenue it generates, or its operating income, or any of the key metrics that matter when you’re about to analyze a $14 billion deal.

With that out of the way, let me say: Amazon buying Whole Foods for $13.7 billion is a brilliant acquisition.

Amazon was already positioned to be the dominant retailer of the next 100 years. One of the biggest pieces it was missing? Groceries. Whole Foods fills that hole in the portfolio. If Amazon can drive down Whole Foods’ prices and increase technological advantages — think drones, checking out without dealing with cashiers, etc. — it will be a slam dunk. Via

Amazon’s Whole Foods bid wipes billions off retailers, food stocks is spending $13.7 billion to buy Whole Foods, but its damage to the stock market has already been in the tens of billions. Just among the biggest losers in the retail and food categories in the S&P 500, the market cap destruction for just 20 stocks was $37.7 billion Friday. Cowen analysts say the grocery business breaks down into three categories and Amazon is attacking all three.

Amazon has been an unparalleled disruptor for the retail industry, and the fact it is now turning its focus to groceries has sent a chill through a whole new category. Even the food companies supplying the stores have been slammedg.

The analysts said Amazon will likely be ninth largest retail grocer in 2017, but by 2021, they expect it to be No. 3 three behind Wal-Mart and Kroger. Via

Amazon Is Buying Whole Foods, and the Grocery Industry Is in Big Trouble sent a shockwave across the retail industry on Friday, announcing it would buy Whole Foods in a $13.7 billion deal. The combination of a high-end supermarket chain and the US’s dominant online shopping business looks set to wreak havoc in the grocery industry, where big chains are already struggling with low profit margins and the creeping power of Silicon Valley. The deal gives Amazon a physical foothold in hundreds of the country’s wealthiest urban areas and a heavily trafficked testing ground for its experiments in physical retailing.

Stocks in major US food retailers began tanking soon after the deal was announced. By midday, shares in Kroger were down 11%, and Wal-Mart stock was down 5%, wiping away more than $10 billion from the market value of the world’s largest retailer. Shares in Costco and Target were both down about 6%.

It’s a brutal scenario for the rest of the industry. Whole Foods, with 460 stores in the US, Canada, and the UK, will now have access to technology its competitors can only dream of — as well as the financial backing of the world’s fourth-largest company, and one that is famous for its willingness to slash profit margins in its relentless quest to gain customers. Via

How Amazon got the Whole Foods deal a town hall meeting the day the deal was announced, Whole Foods CEO John Mackey shed light on how the deal went down — and it’s unorthodox. As Mackey tells it, it all started with a blind date six weeks ago, which was love at first sight.

So I just— putting it a little bit in narrative form— how did we meet? It was actually mutual friends set us up on a blind date. (LAUGHTER) And— Jason Buechel and Ken Meyer and David Lannon and I flew up to Seattle a little over six weeks ago. And— it— we just fell in love. It was truly love at first sight. (LAUGHTER)

I’m very serious. It’s like we came outta there. We talked for 2 1/2 hours. I think we coulda talked for 10 hours. And— when we huddled together, it was like we just had— we just had these big grins on our faces, like, “These guys are amazing.” They’re so smart. They’re so authentic. They say what’s on their mind. They’re not playin’ a bunch of BS games. And it was like, “This is gonna be so incredible.” ‘Cause we were talkin’ about the things we can do together, things that I cannot talk about today and won’t be able to talk about until this deal closes. Via

The big lesson from Amazon and Whole Foods: Disruptive competition comes out of nowhere doubt that Google and Microsoft ever worried about the prospect that a book retailer, Amazon, would come to lead one of their highest-growth markets: cloud services. And I doubt that Apple ever feared that Amazon’s Alexa would eat Apple’s Siri for lunch.

For that matter, the taxi industry couldn’t have imagined that a Silicon Valley startup would be its greatest threat, and AT&T T, -0.13% and Verizon VZd, -0.13% surely didn’t imagine that a social media company, Facebook FB, +1.48% could become a dominant player in mobile telecommunications.

But this is the new nature of disruption: disruptive competition comes out of nowhere. The incumbents aren’t ready for this and as a result, the majority of today’s leading companies will likely become what I call toast—in a decade or less.

Note the march of Amazon AMZN, +0.76% First it was bookstores, publishing and distribution; then cleaning supplies, electronics and assorted home goods. Now Amazon is set to dominate all forms of retail as well as cloud services, electronic gadgetry and small-business lending. And its proposed acquisition of Whole Foods WFM, +1.27% sees Amazon literally breaking the barriers between the digital and physical realms. Via

Amazon Bought Whole Foods Because Broccoli’s Harder Keeping Than Books’s hard to distribute food. “It’s not like you can just walk in and grab a building” and turn it into a food-ready warehouse, Marc Wulfraat, the president of MWPVL International explained to the Observer in a phone call. Warehouses used for food and food distribution can take a year or so to build or rehab to the specifications safe for storing stuff people will one day eat.

“Amazon’s been trying to get into groceries and it’s been a long slow process,” Wulfraat explained. His company did an independent analysis of Amazon’s existing distribution facilities. Whole Foods has 11 food distribution centers already working around the country, which helps explain the rationale for Amazon to buy the company. Rather than starting from scratch near major metro areas, Amazon has just purchased a nationwide network of warehouses equipped to handle food.

They aren’t large warehouses, though. Whole Foods runs lean distribution operation, with considerably smaller warehouses than its competitors use. It accomplishes this in part by relying on United Natural Foods for its fresh produce. Wulfraat said Whole Foods keeps its warehouses just “big enough to have a limited number of high velocity items.” Still, by adding nearly a dozen more food distribution centers to its network, Amazon can more quickly expand its Amazon Fresh services. Via

Amazon could order GrubHub for ‘dessert’ after Whole Foods main course Inc. shares soared Monday after Wedbush Securities suggested the online and mobile food-ordering service could become Inc.’s next buyout target, following the Whole Foods Market Inc. megadeal.

Analyst Aaron Turner said he believes an Amazon-GrubHub deal would be a “win-win” for the two companies, as there are already “similar ingredients” to Amazon’s AMZN, +0.76% strategy for Whole Foods WFM, +1.27% that could lead to significant synergies for both companies.

With Amazon’s focus now “squarely on food delivery” after the Whole Foods deal, Turner said there are several reasons that a move for GrubHub would make sense: “The Amazon restaurants service “was met with much sizzle, but lacked spice,” Turner said, as it has been unable to capture any significant user traction, and restaurant acquisition has been lackluster. While Amazon struggled, GrubHub has been able to expand into new markets, reaccelerate user and revenue growth and upscale its delivery infrastructure,” Turner said. Via

Amazon Could Pummel Walmart With One Whole Foods Brand Analyst Michelle Grant said (AMZN) has the potential to take down huge retail competitor Walmart (WMT) with its newly acquired Whole Foods (WFM) “Whole Foods 365” brand, CNBC reported.

Whole Foods 365 is the cheaper, more value-conscious cousin of Whole Foods. Amazon has the financial and tactical capability to grow the Whole Foods 365 brand into a major competitor for Walmart by targeting younger and more frugal consumers, Grant said.

Walmart is “playing offense,” though, e-commerce head Marc Lore said. The company has already lowered prices and started some curbside pickup to compete with Amazon’s expected plans to lower Whole Foods prices. Groceries comprise 56% of Walmart’s revenue, meaning a hit in the grocery aisle could signal trouble down the road. Via

​Will Amazon’s purchase of Whole Foods make the power of Big Tech a big political issue?​will-amazons-purchase-of-whole-foods-make-the-power-of-big-tech-a-big-political-issue/The business and consumer implications of the $1​4​ billion Amazon-Whole Foods deal are myriad, both short-term (​”​the boring U.S. grocery business is about to become much more interesting​“)​ and long-term (“the decision by Amazon and Walmart to compete for my grocery business​ … ​are tiny battles in a war to dominate a changing global economy​“​).​

But there is also a political implication that goes beyond politics. As soon as I heard of the acquisition, I thought of some of Candidate Trump’s comments about Amazon, such as these to Fox News:

This [Washington Post] is owned as a toy by Jeff Bezos, who controls Amazon. ​Amazon is getting away with murder tax-wise. He’s using the Washington Post for power so that the politicians in Washington don’t tax Amazon like they should be taxed​.​ He’s using the Washington Post … for political purposes to save Amazon in terms of taxes and in terms of antitrus​t.​ He thinks I’ll go after him for antitrust. Because he’s got a huge antitrust problem because he’s controlling so much, Amazon is controlling so much of what they are doing​. Via AEIdeas

Grocery price pressure looms

With its deep pockets, Amazon will exert big downward pressure on grocery trade prices with a negative impact on profits and earnings for competitors such as Walmart, Kroger, Costco, Target and more. The retail wars have just bigger and the benefits to consumers could be sizable.