Amazon's Acquisition of Whole Foods to Impact North Texas

Tuesday, 20 Jun, 2017

The message is this: The brick-and-mortar retail business that pioneered organic, fresh food and the country's dominant e-commerce company makea powerful combination. "Amazon has moved squarely onto the turf of traditional supermarkets and poses a much more significant threat".

"The ramifications for all of retail are seismic - not just retailers that sell grocery, but for everyone", Gordon Haskett analyst Chuck Grom said. Backed by its express delivery network, it has entered the US grocery market with limited success through its online platform in recent years under a brand name known as AmazonFresh. Amazon, on the other hand, saw an increase in its share value of around 2.4 percent with around $11 billion adding to its market capitalization.

Amazon has recently begun experimenting with bookstores and a small grocery, but this is by far its most ambitious move into physical retail.

Shares of the grocer were trading at $US33.06 a share before the deal was announced, so the deal represents a 27% premium on its closing price yesterday. State Street and Fidelity both have a substantial amount of shares in Whole Foods, as BBJ reported.

"There's no value in Amazon keeping the status quo at Whole Foods".

Shares of Whole Foods rose 29 percent today after Amazon announced its takeover. Whole Foods doesn't have a similar footprint but it is popular in this more affluent areas that Amazon likes.

Amazon has been looking at shop layouts that could allow traditional in-store purchase, online ordering with on-site pickup, and home delivery, using store warehouse space as a distribution point, Ladd said.

Amazon also has been testing automation technology at a Seattle convenience store that's now open only to Amazon employees.

So what if you could get Whole Foods products or other groceries delivered to your door? For 10 years, the company has offered a type of food delivery service via Fresh, but that simply won't do, it seems.

Mackey will remain as CEO of Whole Foods after the deal closes, and the headquarters of the grocery supermarket chain, now under pressure from fierce competitions, will stay in Austin.

Whole Foods had been under pressure from activist hedge fund Jana Partners LLC prior to the announcement of Friday's deal, prompting it to overhaul its board of directors.

"This is the most disruption the grocery industry has seen in the last half-century", said David Ciancio, a former Kroger executive and a strategist at consumer-data company dunnhumby.

The deal is for $13.4 billion in cash and the remainder in debt. Whole Foods is courting the discount shopper with its lower cost brand 365. Just two years ago, Whole Foods CEO John Mackey told Bloomberg BusinessWeek that Amazon's foray into grocery delivery would be "Amazon's Waterloo".

Already, Amazon is one of the biggest online retailers known for attracting millions of shoppers to its website every month. It has expanded from a book seller into a merchant of almost all consumer products, as well as producing videos. The deal now gives Amazon control of those 431 stores, almost all of which are in neighborhoods that are more affluent and younger than America as a whole.