Can Amazon persuade enough people to buy fresh food online?

Shares of many grocers and retailers slumped Friday after Amazon announced a $14 billion deal to buy high-end grocery chain Whole Foods Market.

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 USA, in Canada and in the United Kingdom.

The acquisition also represents the single largest deal Amazon has made to date. In order for Amazon to get the volume growth they are looking for, fresh foods has to be part of the equation.

The acquisition, which has not yet received approval from the shareholders of Whole Foods Market, adds a 27% premium to Thursday's closing value of its stock.

Amazon spokesman Drew Herdener said plans do not include reducing jobs as the result of the deal and that the company does not plan to automate Whole Foods cashiers jobs with Amazon Go technology. Its previous record-breaker was the $1.2 billion acquisition of online shoe retailer Zappos in 2009.

"This is a game changer", Zachary Fadem, an analyst at Wells Fargo & Co, said.

Walmart, which has the largest share of the US food market, has already been pushing harder into e-commerce to build on strength in its stores and groceries.

Amazon's talks with Whole Foods began three years ago, when Amazon was developing fast delivery service Prime Now, according to a person familiar with the talks who declined to be identified disclosing private information.

The deal has the possibility to be "transformative", Moody's lead retail analyst Charlie O'Shea said in a note, "not just for food retail, but for retail in general".

In October, reports surfaced that Amazon was planning to build its own grocery stores. State Street and Fidelity both have a substantial amount of shares in Whole Foods, as BBJ reported.

Walmart dropped 5.4 per cent, haemorrhaging $12.9 billion in market value.

As many enjoyed their daily lunch on the adjacent steps, some were revisiting Whole Foods because of the big news. "This shows that online is going to be very dominant in the grocery business - and very quickly", said former Whole Foods executive Errol Schweizer.

Shares of iconic food-staple companies also took a hit.

Its AmazonFresh delivery service, which has been slow to take off, accounting for 0.8% of all grocery purchases a year ago.

In an attempt to further pressure one of its biggest competitors, Walmart, Amazon decided it was time to jump into the grocery scene with its purchase of Whole Foods Market, an upscale #Grocery Chain known for its organic products and health foods. Younger customers are already shopping extensively online and have come to expect digital retail sales, he said.

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.

Investors like the deal and think it will be good for the online retail giant, which has been expanding its grocery offerings. He said that these are likely the higher-income households who tend to buy more expensive brands and cuts of meat.

The bombshell news caused grocery store stocks to dip.

"This could annihilate them", Jetta said.

The grocer will continue to operate stores under the Whole Foods Market brand, the companies said. I assume the physical presence gives them the ability to distribute other products more locally.

A Whole Foods Market is pictured in the Manhattan borough of New York City, New York, U.S. June 16, 2017.

  • Zachary Reyes