If Amazon brings down Whole Foods' prices, as many believe it will, it could accelerate the consumer migration toward natural and organic brands that has hurt these mainstream manufacturers so badly during the past several years.
Pundits have been quick to jump on the story, and some see it as a $13 billion crap shoot or the biggest mistake of CEO Jeff Bezos' career. And at the end of the day, Amazon, in buying Whole Foods, has hundreds of "click and collect" locales ready to go with just some minor retrofitting and staffing changes.
On June 16, Amazon.com (NASDAQ:AMZN) announced that it had reached an agreement to buy Whole Foods Market (NASDAQ:WFM) for $42 per share. "The world is changing, and local grocers will have to consider the dynamics of setting up new stores or transforming their models to stay in the game". Then, with the Amazon Whole Foods deal news, Kroger stock ended up down about 30% in the span of two days. Many commentators are suggesting that this news means online grocery retail has come of age, that supermarkets are doomed, and that a large percentage of grocery retail is poised to move online. Whole Foods is fighting to broaden its appeal while preserving its reputation on quality. Both companies, by the way, are supporters of NPR. The United Food and Commercial Workers Union, whose 1.3 million members mostly work in supermarkets, has had its eye on Whole Foods for years, said David Pryzbylski, an employment lawyer with Barnes & Thornburg, LLP who has represented supermarkets in union-related cases.
"This deal is going to upend the entire grocery store industry", Phil Lempert, a food marketing expert based in Los Angeles, was quoted as saying by The Des Moines Register.
As such, Amazon doesn't need to reinvent the grocery store, it only has to reinvent the grocery cart. They can raise debt at a very low price. Adam Levy owns shares of Amazon. The only other logical grocers for them to buy would be Publix or Wegmans, which share all of these attributes, but both of those chains are only in limited geography, while Whole Foods is national, and both Publix and Wegmans are owned by families who are not interested in selling, making the discussion a moot point.
At the same time, the supermarket industry itself is facing challenges, as companies like Kroger post disappointing earnings and the prospect of price wars looms with the entrance of Germany's Lidl, which plans to have 100 stores in the USA by this time next year, and the expansion of discount stores like Aldi, which plans 2,500 stores by 2022, up from 1,600. Two years ago there were an estimated 262,800 food stores in the US, a 15 percent increase in just the last decade. Another source asserted that Whole Foods has also not received any rival bids as of Friday. With Amazon's help, the chain may be able to set itself apart again with technology. Still, it's an example of how the checkout might get easier down the road.
"Dominant players like Walmart, Kroger, Costco and Target now have to look over their shoulders at the Amazon train coming down the tracks", said Moody's lead retail analyst Charlie O'Shea. Gokki says the effort will force grocery stores to make the shopping process more pleasant and efficient.
Amazon's newest fulfillment centers are its eighth generation, and they rely heavily on robotics. By comparison, Walmart has about 4,700 stores, while Kroger has almost 2,800 under a variety of names.
Image credit: Whole Foods Market.
Speculation about the Australian consequences have ranged from Amazon buying an independent grocery chain, such as Harris Farm Markets or Ritchies, to purchasing wholesaler Metcash or doing a deal to use its infrastructure, to finally bringing Whole Foods to Australia. "We're growing our business with the U.S. Postal Service", Bezos said at Recode's 2016 Code Conference in Rancho Palos Verdes, reported by Bloomberg.
As sales declined at established locations, Whole Foods recently said it was hitting the brakes on expansion and that it no longer saw potential for 1,200 locations. "The big opportunity will be for Amazon to put lockers at Whole Foods where (customers) can pick up all the other stuff they order from Amazon".