Amazon deal slams retailers as Dow edges to record

As Amazon moves into the grocery business with its $13.7 billion purchase of Whole Foods Market, the online retailer might meet resistance from some dedicated shoppers reluctant to buy food on the internet.

The deal, expected to close in the second half of this year, gives Amazon - which has been experimenting with various store concepts to establish itself as a food purveyor - an instant expanse of 460 high-end stores across the US, in Canada and in the United Kingdom. The deal on the surface seems valuable for stakeholders in both companies. Amazon's shares rose 2.4 percent to $987.71, adding $11 billion to its market capitalization, which in one sense makes the acquisition almost free for Amazon shareholders. Kroger, which was rumored to be considering takeover of Whole Foods as well a year ago, was down 9%. "Whole Foods Market has been satisfying, delighting and nourishing customers for almost four decades - they're doing an unbelievable job and we want that to continue".

Amazon's shares were up 3 percent at $993.40, adding more than $14 billion to its market capitalization.

For starters, acquiring Whole Foods' 440 United States stores - many of them in primo locations - will bolster the network for AmazonFresh, the company's online grocery delivery service.

Amazon would also look to change Whole Foods' inventory, introducing its own private-label products to replace items deemed too expensive to have mass appeal, the person with knowledge of the matter said.

In the short-term, said von Massow, it's unlikely Amazon will steal customers from other Canadian grocers. For example, when it comes to buying fresh food, we like to feel, see and touch the fruits and vegetables we're buying.

More hubs means quicker and fresher delivery, which will bolster Amazon's existing grocery delivery service, AmazonFresh.

The $42-per-share, all-cash deal, expected to close later this year, includes Whole Foods' net debt and represents about a 27 percent premium to its closing stock price on Thursday.

John Mackey, Co-Founder and Co-CEO of Whole Foods Market. But its stance could attract rival grocers to partner with Instacart in a broader bid to resist Whole Foods' new corporate resources.

Amazon is already nearly dominating retail - the company's market share of the USA retail sector past year was estimated at 34 percent, while Walmart came second with 5 percent, according to Needham & Company's research in April.

"Whole Foods Market will continue to operate stores under the Whole Foods Market brand and source from trusted vendors and partners around the world", Amazon said in a press release. Its shares closed at $42.68 yesterday, up 29.1 percent.

The grocery market, a $750 billion sector in the US, is one of the few provinces in the retail world that Amazon hasn't managed to alter.

Investors worry that Amazon, which has already won over hordes of shoppers of clothing, electronics and many other kinds of goods, wreaking havoc on department stores and other brick-and-mortar retailers, will do the same thing with groceries. "If shoppers are going to allow a company, a retailer, to pick their meat, their produce and their seafood, Whole Foods is probably at the top of the list of retailers with the best reputation across the country".

And Amazon could also sell those gadgets - along with its e-readers, tablets and streaming devices - at Whole Foods.

  • Zachary Reyes