Amazon shakes up retail with $13.7bn Whole Foods deal

Well, not anymore. In one fell swoop, Amazon founder Jeff Bezos has charged into the supermarket business with the US$13.7 billion (S$19 billion) acquisition of Whole Foods last Friday.

Amazon is a beast in the world of online retailers. It will take over a natural and organic grocer pioneer with 456 stores, a mecca for young, high-end shoppers, that has been struggling to rein in prices and integrate technology.

Amazon has previously offered food delivery through its Fresh service for over a decade but it has not made its mark in the grocery market.

"The ramifications for all of retail are seismic - not just retailers that sell grocery, but for everyone", Chuck Grom of Gordon Haskett said.

Amazon's latest move is believed to reshape the $800 billion grocery market already beset with so many changes.

Inc. will pay $42 per share for Whole Foods Market Inc., including debt.

News of the deal sent share prices of grocery chain Kroger - as well as other retail chains that carry groceries, such as Target and Costco - plummeting.

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

The grocery chain, known for its organic options, had been facing increased pressure from rivals, including European grocery chain Lidl, which is planning to enter the East Coast market, along with Aldi and Trader Joe's.

Whole Foods will run as a wholly independent subsidiary of Amazon. The Whole Foods purchase may help it resolve that issue.

"Large grocery stores like Kroger and Albertsons will be especially affected", said Madeline Hurley, senior analyst at IBISWorld.

Amazon is considering extending the cost-cutting effort with the no-checkout technology it's developing at its Seattle convenience store, "AmazonGo", according to the person familiar with the matter, who asked not to be named because the plans are private.

"This shows that online is going to be very dominant in the grocery business - and very quickly", said Errol Schweizer, a former Whole Foods executive. Amazon tends toward competitive pricing, while some of Whole Foods' products are so expensive the company has been dubbed "Whole Wallet".

The grocer will continue to operate stores under the Whole Foods Market brand, and Mackey will remain CEO, the companies said.

But Michelle Grant, head of retailing at market research firm Euromonitor, said Amazon could use an obscure part of the Whole Foods portfolio - Whole Foods 365 - to lure Wal-Mart shoppers. The acquisition price implies a trailing 12-month price-to-earnings multiple for Whole Foods of 31 times, versus a 14.4 average for the S&P 500 Food Retail index.

Amazon, started in Seattle in 1994 by Bezos, a former hedge fund manager, has grown into the world's biggest diversified online retailer, with a market capitalization of almost $500 billion.

  • Zachary Reyes