With $14Bn Whole Foods deal, Amazon on collision course with Walmart

Claudine Rigal
Juin 19, 2017

In a move with far-reaching implications for the USA grocery business, online retail pioneer Amazon and organic grocery chain Whole Foods Market announced Friday that they have entered into a definitive merger agreement under which Seattle-based Amazon will acquire Whole Foods for about $13.7 billion.

The deal represents a dramatic turn in strategy for Amazon, which has offered food delivery through its Fresh service for a decade but has not made a major dent in the $700 billion grocery market.

Some shoppers worry about the quality of their produce and say they're rather pick their pears themselves.

The acquisition could pose a bigger threat to Target, which has been building smaller stores in cities like NY to attract the affluent urban shoppers coveted by Whole Foods and Amazon, said Kurt Jetta, chief executive officer of TABS Analytics, a consumer products research firm.

"I just hope they keep the integrity of Whole..."

- Amazon Web Services, launched in 2002 to be the online hosting platform for Amazon and its partners, has grown into one of the world's biggest cloud computing operators, generating close to 10 percent of company revenues and a large share of its profit.

Amazon's e-commerce empire has already forever changed how we shop online and now it wants to extend its reach into how we eat. Just two years ago, Whole Foods CEO John Mackey told Bloomberg BusinessWeek that Amazon's foray into grocery delivery would be "Amazon's Waterloo".

Whole Foods is renowned in the United States for its high-quality premium organic and natural grocery products.

That included potentially using technology to eliminate cashiers. "Books are lot more homogenous", she said, noting that a hardcover Harry Potter book is the same at Amazon - though Amazon can sell it at a lower price. Amazon is investing a considerable amount of capital and energy into same-day delivery and grocery delivery.

The acquisition of Whole Foods WFM, +29.10% will give Amazon an instant physical presence in cities across the nation, add a fantastic brand to their portfolio, and give them access to a forward-thinking customer base that is likely to embrace Amazon's experiment-driven approach to innovation. That prodding irked Mackey, who has referred to Whole Foods as his "baby" and to Jana as "greedy bastards". "Additionally, over the past year, Whole Foods has also pushed their private label offering, especially with the roll out of their spin-off store 365 by Whole Foods". Based on his forecasts, Amazon will likely rank as the ninth largest USA grocery retailer this year - though he expects it to assume third place by 2021, behind only Walmart and Kroger.

The two deals make it clear that the lines that divided traditional retail from e-commerce are disappearing and sector dominance will no longer be bound by e-commerce or brick-and-mortar, but by who is better at both.

Adrienne Anderson, at a Whole Foods in Savannah, Georgia, says she shops at Whole Foods nearly exclusively for meat and fresh produce "because of the quality and selection" and because fruits and vegetables are locally sourced.

But home delivery of goods has proven to be a big hurdle due to costs and the difficulty of selling meats and other perishables.

Prime membership growth isn't showing any signs of slowing down.

Amazon is now taking steps to make Prime more affordable for everyone, offering a significant discount for customers on government assistance programs. Stern replaced Roberta Lang, a longserving in-house legal chief at Whole Foods.

"I don't like the thought of my fresh groceries sitting on my doorstep while I'm at work", Anderson said.

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