Amazon is buying Whole Foods and grocery shopping may change forever
- Author: Zachary Reyes Jun 21, 2017,
Jun 21, 2017, 18:51
While the news came as a surprise to most observers in both the technology and retail sectors today, it is apparently a move Amazon has been contemplating since at least last fall, when it first considered acquiring the organic food company.
The deal could be "transformative", Moody's lead retail analyst Charlie O'Shea said, "not just for food retail, but for retail in general".
Set up in 1978, Whole Foods, whose stores now span more than 430 locations, has found it hard to attract more mainstream consumers as Walmart and other large chains have stepped up their sales of natural and organic products.
Whole Foods, often derided as "Whole Paycheck" for its high prices, could see its reputation change if Amazon, a master at undercutting its brick-and-mortar rivals, passes any savings from automation to customers. Kroger, the nation's biggest supermarket chain, had earlier warned Wall Street of disappointing earnings. The Journal estimated that the Amazon announcement had wiped almost $29 billion from the aggregate market cap of rivals in the grocery category.
"What we'll be watching next is whether Amazon makes a second big bet in brick-and-mortar by buying another established player, one that sells clothing and other items for example", says Bankrate's Hamrick says.
Costco, the wholesale club company, gave up $12.44, or 6.9 percent to end at $167.64.
"This will definitely make the market more competitive", she added. But online delivery of groceries has been tough to pull off.
Shopper Earlene Garvey had a carload of groceries Friday from Whole Foods but said nothing is easier than having groceries delivered from Amazon's service AmazonFresh.
The company, which had sales of almost $136 billion in 2016, accounted for 43 percent of online retail sales in the United States a year ago, according to Slice Intelligence, a San Mateo firm that analyzes e-commerce trends. It also had announced a board shake-up and cost-cutting plan amid pressure from activist investor Jana Partners.
While Whole Foods has struggled to expand, Amazon has been expanding its reach in goods, services, and entertainment.
"For other grocers, the deal is potentially terrifying", Neil Saunders, managing director of GlobalData Retail, wrote in a report released Friday.
The deal prompted jokes and semi-serious posts on Twitter about a space-age shopping era with Amazon's artificial intelligence program Alexa replacing cashiers and ordering drone deliveries of kale.
"They (Amazon) always try to offer the best price, which is good for the customer, but not good for the brand", Motkin said.
The Amazon Go pilot store allows customers to choose items and then pay the bill automatically by just walking out of the store, all without going to a cash register. It was recently granted a patent for technology that would block shoppers from comparing prices using their mobile devices while they are in stores. In order for Amazon to get the volume growth they are looking for, fresh foods has to be part of the equation.
"I don't know if they do deliveries", she said, referring to Whole Foods.
The market reverberations of the announced deal traveled beyond the retail industry - shares of food companies like Hershey and Campbell Soup slid, too.