What’s the big deal? Amazon-Whole Foods retail impact and analysis (Pt 2)

What’s the big deal? Amazon-Whole Foods retail impact and analysis (Pt 2)

- in Retail, Slider, VC, Mergers, Acquisitions

For many reasons, our previous roundup of news and analysis of the Amazon-Whole Foods deal struck a chord with readers (Amazon gobbles up Whole Foods). If you’re in the retail business you’re always watching to see what Amazon is up to  and how it will affect you in-store and online.

If you’re in the grocery business, gulp, what’s ahead? If you’re a consumer, will it mean lower food prices at Whole Foods in the future as Amazon starts to exert its usual discount pricing to build market share?  And if you’re an investor,  are you holding, buying or selling shares in  e-commerce, retail and the grocery industry?

Due to reader demand, here’s a second roundup of opinion and perspectives on what the Amazon-Whole Foods deal means to the grocery industry, consumers, investors and Amazon itself. And, just for fun, we’ve got Jimmy Kimmel’s take on the deal too: “And then the AWF employee presents fascinating information, “You know, people who bought that hummus also enjoyed our tzatziki dip and our triple-A batteries.”

We live in interesting times!

The real reason Amazon buying Whole Foods terrifies the competition

http://www.cnbc.com/2017/06/20/the-real-reason-amazon-buying-whole-foods-terrifies-the-competition.htmlAmazon’s takeover of Whole Foods sent the stock of competing grocery chains plummeting. To understand why, you need to know something simpler than Amazon’s far-reaching ambitions or possible vision for transformation of the grocery industry: Amazon doesn’t make any money.

Competing with Amazon is terrifying for any incumbent business because the company’s executive team operates on a radical model whereby the company’s overall net income is nearly zero quarter after quarter.

That is by design, not because they can’t come up with any ways to make money. On the contrary, to the best of anyone’s knowledge many of Amazon’s specific lines of business — including, notably, Amazon Web Services — are perfectly profitable. But while Apple, Google, Microsoft, and Facebook hire lawyers and accountants to amass vast stockpiles of cash legally held in overseas tax haven subsidiaries, Amazon simply chooses to barely accumulate any cash at all.

That’s an enormous problem for every grocery chain in America, which already operate on razor-thin margins. Nobody thinks Amazon bought Whole Foods in order to siphon off Whole Foods’ operating profits in order to subsidize something else. A Whole Foods under Amazon’s stewardship will almost certainly accept lower profit margins than it does as an independent chain — and that spells trouble for everyone else in the grocery business. Via cnbc.com

Amazon cutting prices at Whole Foods will not cause deflation

Amazon (AMZN) buying Whole Foods (WFM) seems like the only thing anyone can talk about right now.

This includes Federal Reserve officials. On Tuesday, Chicago Fed president Charles Evans said in an interview with CNBC that, “In a world of global competition and new technology, I think competition is coming from new places. New partners are choosing to merge and sort of changing the marketplace and [bringing] more competitive pressures on price margins.”

Evans later noted the Amazon-Whole Foods merger by name, which analysts have speculated will come with grocery price cuts.

In the Evans read-through, then, what this means for Fed policy is that its 2% inflation goal — which is benchmarked to the “core” PCE reading, which excludes the cost of food and energy — may be even harder to achieve. (“Core” PCE has hardly run above the Fed’s 2% goal since the financial crisis.) Except that the exact opposite would be most likely to happen. Via finance.yahoo.com

Why Amazon buying Whole Foods could make groceries cheaper

http://www.businessinsider.com/why-amazon-buying-whole-foods-could-make-groceries-cheaper-2017-6The deal is “absolutely game-changing” for Amazon, said Phil Lempert, an industry observer and the founder of SupermarketGuru.com, told MONEY. But will it make your groceries any cheaper? Many experts say yes.

“It’s good news for consumers. This is going to be fabulous” for anyone hoping to save money on groceries, Lempert said.

In general, Lempert said, more competition in the grocery sector will lead to lower prices. The day before the announcement, Kroger stock plunged 19% after investors found out America’s largest supermarket chain was cutting its profit outlook by 10% and is being forced to lower prices amid heightened competition. Speaking of which, this week the low-price grocery Aldi, which is owned by the same company as Trader Joe’s, announced a major expansion in the U.S.

Another low-cost grocer based in Europe, Lidl, also opened its first 10 U.S. locations this week, in the Carolinas and Virginia, and it has plans to have up to 100 stores in operation within a year along the East Coast. Via businessinsider.com

Amazon’s Whole Foods mocked by Jimmy Kimmel

https://www.cnet.com/news/jimmy-kimmel-amazon-whole-foods/On Tuesday night, Jimmy Kimmel presented his thoughts. Nightmarish thoughts.

There he is in his local Whole Foods, accepting an offer to taste some pita chips and hummus. He’s barely swallowed when the kind Amazon Whole Foods employee offers, “Did you like that just the one time or would you like to have it every month?”

Yes, when Amazon gets hold of Whole Foods, it will surely bring its finest hard-sell techniques over. Like the need to ask Kimmel exactly how many stars the hummus was worth. And then the AWF employee presents fascinating information, “You know, people who bought that hummus also enjoyed our tzatziki dip and our triple-A batteries.” Via cnet.com

Amazon’s Real Agenda Behind Whole Foods Bid

Amazon.com Inc.’s nearly $14 billion bid for Whole Foods is about more than just acquiring a means to sell high-end food products online. It’s about busting the supply chain in an ancient business.

I have no direct knowledge pipeline into Amazon’s strategy for acquiring Whole Foods, which is known for overpriced, organic products. But it’s clear that they want to re-invent the grocery business and create a new business model. There are several positive and negative scenarios.

As with any stock, Keynes’s “animal spirits” often govern the pricing of a company. The market expects Amazon to dominate all of retail, which is why it’s priced at nearly $1,000 a share. The company may even score big in food distribution and retail.

To understand why Amazon wants to be a major player in the grocery business, you have to look at the system behind the industry. It’s complicated, but Amazon may tear it down to cut middlemen. That’s how it built its retail empire, which is threatening every shopping mall, independent store and old-style department store chain. Via forbes.com

Wall Street bails on Target after Amazon’s deal for Whole Foods

http://www.cnbc.com/2017/06/21/wall-street-bails-on-target-after-amazons-deal-for-whole-foods.htmlA difficult year for Target is getting worse. Wall Street is now more worried about Amazon’s threat to Target after the e-commerce giant’s $13.7 billion deal to buy Whole Foods Market.

Target shares fell 5 percent Friday on the news of the deal. The stock is down 29.5 percent this year after the retailer’s disappointing financial results. The S&P 500 has gained 9 percent. Citi Research on Wednesday lowered its rating for Target to neutral from buy, saying its food business is at risk due to Amazon.

“With Wal-Mart enhancing its e-comm portfolio with Jet.com and Bonobos over the past year through acquisitions that target millennials and AMZN’s sizable entry into fresh/organic food w/ WFM acq., TGT’s two main competitors have very quickly changed the game,” analyst Kate McShane wrote in a note to clients Wednesday. “This makes TGT’s rev. growth prospects through organic or acq. growth tougher to achieve, absent any kind of game changing move.” McShane reduced her price target for the company to $56 from $63. The lower target would be a 10 percent gain from Tuesday’s close. The analyst noted that food is approximately 22 percent of Target’s sales and that it has been able to differentiate itself somewhat by offering consumers all-in-one access to food and household products. Via cnbc.com

Visualizing the stock market impact of the Amazon-Whole Foods deal

http://www.fierceretail.com/operations/visualizing-stock-market-impact-made-by-amazon-whole-foods-dealUpon learning that Amazon would be buying Whole Foods, the stock market’s response was both swift and ubiquitous. Stock prices of all major publicly traded supermarket brands immediately fell more than two points as investors feared that incumbents would be unable to compete with Amazon’s new firepower.

In the days since, supermarket stocks have had a chance to recuperate somewhat, even if not to their preceding levels. But the plunge represents a real fear that competitors may not be able to match the quality of goods Whole Foods provides along with the logistical expertise of Amazon.

But Amazon’s path into food sales hit a few roadblocks it didn’t face in other industries. People depend on locality for their groceries, and while Amazon had toyed with the idea of creating tech-powered low-staffed grocery stores, it didn’t have any existing storefront assets to build upon.

The Whole Foods purchase neatly solves that issue. Whole Foods is one of the biggest grocery chains at this point and has stores in nearly every state. Moreover, Whole Foods brings along a robust supply chain and its own brands and products, which Amazon will now be able to deliver to customers. Via fierceretail.com

Amazon Buying Whole Foods: Walmart Strikes Back on Cloud

http://fortune.com/2017/06/21/walmart-amazon-whole-foods/That acquisition takes square aim at Walmart’s bread-and-butter grocery business by giving the online retailer 465 new retail locations—thus a much bigger brick-and-mortar presence.

Now, Walmart is telling some partners and suppliers that their software services should not run on Amazon Web Services cloud infrastructure, according to the Wall Street Journal. The report quoted Bob Muglia, CEO of Snowflake Computing, saying that a Walmart (wmt) partner wanted to use his company’s data warehouse service, but was told it had to run on Microsoft (msft) Azure cloud instead of AWS.

Actually, this is a flare up of an old story. Walmart has long used competitive cloud computing technology based on OpenStack and other open-source technology for its workloads. Other retailers—including The Gap, eBay, and PayPal—have also talked about their use of OpenStack. Via fortune.com

Geographic analysis: Amazon and Whole Foods footprints in US are remarkably similar

http://www.seattlepi.com/news/article/Geographic-analysis-Amazon-and-Whole-Foods-11233335.phpAmazon’s $13.7 billion purchase of Whole Foods Market, the largest acquisition in the Seattle company’s history, will give the e-commerce giant a much bigger presence in physical retail, including nearly 450 stores across the United States.

But a GeekWire analysis of existing Whole Foods stores and Amazon distribution locations shows that Amazon won’t be dramatically expanding its geographic footprint into new areas of the country as a result of the deal. In fact, the footprints of Amazon and Whole Foods are strikingly similar in many respects.

In many ways, this result makes sense. Both Amazon and Whole Foods are concentrated in the country’s major population centers, including California, Texas, New York, Florida, Pennsylvania and New York. The proximity of many Whole Foods stores to existing Amazon locations could be one of the factors that attracted Amazon to the deal — making it easier to integrate its existing delivery infrastructure with its new retail presence. Via seattlepi.com


You may also like

Indonesian e-commerce, cashback leader Tokopedia rings up $350M investment from Google, Temasek

In a sign that North American e-commerce markets