Deal Talk: Amazon Stays Mum, While Whole Foods Goes Off Script

Whole Foods Market Inc shares rose on Monday for the second straight trading session after Inc announced plans to buy the upscale grocer, with investors betting that rivals could step in to create a bidding war. News of the deal set social media sites on fire and sparked industry talk of a "game-changing" moment for the sector.

Grocery shopping is likely to get more sensory, as retailers try to make stores a draw beyond just picking up staples. They really are. And one of my takeaways is that, by God, we're gonna become as customer-centric as Amazon.

Amazon, which is now focused on food delivery following the Whole Foods deal, could leverage GrubHub's delivery infrastructure in its grocery-delivery efforts, the analyst noted. Already the behemoth of online retailers, Amazon will now dramatically expand its physical presence, courtesy the 460 Whole Foods stores worldwide. Lightning speed, in fact.

And Amazon has plenty to learn about bricks-and-mortar grocery. As soon as the acquisition was announced, grocery retailer shares around the world were getting hammered on the stock market.

But other experts see advantages to buying Whole Foods beyond just its gourmet and organic food, and access to the affluent customers who favor it. And in a nod to the popularity of delivery companies like Blue Apron, Kroger and Whole Foods have been testing meal kits as well. Those that play can prosper.

The drawback is that the merger might mean cutting staff. Amazon is already testing stores that allow customers to walk out without the hassle of checking out. Based on his forecasts, Amazon will likely rank as the ninth largest US grocery retailer this year - though he expects it to assume third place by 2021, behind only Walmart and Kroger. By acquiring Whole Foods, Amazon now owns a familiar name with a lot of value in the market.

For example, Bryan Gilderberg, head of research at Kantar Retail, shared some of his research with me on Friday.

According to Bloomberg, Amazon plans to cut prices at Whole Foods in order to get rid of its "Whole Paycheck" reputation. Both Amazon and Whole Foods are concentrated in the country's major population centers, including California, Texas, New York, Florida, Pennsylvania and New York.

Still, Amazon has little experience folding such a large company by valuation into its organization. For one, the combined Amazon-Whole Foods is a strong private-label player. Through AmazonFresh, Prime members in select cities can shop online for produce, everyday items, and favorites from their neighborhood shops and restaurants, and then choose to have them delivered or pick them up in a drive-through location.

There will be fears among some suppliers that, should Amazon decide to put a major emphasis on own label, they could lose out. It's not a limited assortment operator like Aldi, Lidl or Trader Joe's.

  • Zachary Reyes