Amazon Said To Plan Cuts To Shed Whole Foods' Pricey Image

The Seattle, Washington-based e-commerce company said on Friday, June 16, that it intends to buy Whole Foods for $13.7 billion, a huge capture of brick-and-mortar stores that could expand Amazon's retail business further.

Amazon.com, Inc. (NASDAQ:AMZN) has struck a deal to acquire Whole Foods Market, Inc.

The announcement had immediate and punishing consequences on Wall Street for retailers, such as Wal-Mart Stores, that sell groceries and are expected to face even tougher competition with Amazon now much more active in the space.

Amazon's $13.7 billion purchase of Whole Foods means the supermarket, and retailing overall, will never be the same.

Amazon is already playing with innovative ways to make grocery store runs more convenient.

A crowded local grocery market became more interesting - and probably more competitive - as online retail powerhouse Amazon announced Friday that it will buy organic foods specialist Whole Foods, which now has stores in Washington Twp., Mason and Cincinnati.

Mackey helped grow the company from a tiny health-conscious grocer in Texas into a giant in upscale chain in all but eight USA states.

The deal could put Whole Foods in a position to dominate two areas that grocery stores have been focusing on to gain new customers and increase revenue -convenience and high quality organic food, says J.P. Eggers, an associate professor at NYU Stern who focuses on tech and retail. The activist investor firm acquired a stake in the grocery chain and had been pressuring it to find a buyer after sales growth had stalled. The hedge fund said the company was undervalued and needed to overhaul its operations and consider "strategic alternatives", code for a sale.

As sales have slumped, Whole Foods executives have tried to highlight what distinguishes it from rivals.

In a recent interview with Texas Monthly, Mackey called the investors "greedy bastards". These three have begun offering some of what Whole Foods offers, forcing the supermarket chain to cut prices.

For now, though, Whole Foods cashiers and other employees can take a sigh of relief.

"You never know where it comes from", she said.

It is predicted that Amazon could become the ninth-largest retailer by 2017 and third-largest grocery retailer by 2021.

The investment banks that advised Amazon and Whole Foods on this deal (Goldman Sachs, Evercore Partners) will surely make tidy sums if it is approved. Whole Foods will keep operating stores under its name. Amazon also offers grocery shipments elsewhere, but that's tough with perishable foods.

Projected cost of Whole Foods purchase by Amazon.

It took a different path from online competitors like Shipt, Instacart and Peapod, which use existing retailers to deliver groceries and avoid holding inventory. Amazon, though its Prime benefits program has created strong loyalty, has a long way to go before it's a default choice in groceries as it often is for books and electronics.

  • Zachary Reyes