Is Walmart Thinking About a Whole Foods Bid?
- Author: Zachary Reyes Jun 23, 2017,
Jun 23, 2017, 11:40
Whole Foods is a USA chain of 461 grocery supermarkets (440 in the United States, 12 in Canada and 9 in the UK), focusing on organic and natural products. Wal-Mart lifted its base wage to $10/hour previous year, and Kroger said on its earnings call last week that it was lifting its pay in some competitive markets.
In the more than 20 years that I've been contracted to seek out and negotiate the sale of companies, I've never closed a deal where the buyer was on my client's radar screen.
"The pressure they exert on suppliers is stifling", Mr. Lipman said. JPMorgan also noted that even if Amazon bids $72 a share for Whole Foods, it would "only be 5 percent of its market cap".
Rohit Anand, a principal at KTGY Architecture + Planning, said Amazon's bet on brick and mortar retail speaks to the company's belief it can blend what it offers online with the high-touch service of a Whole Food grocery store for an overall shopping experience that doesn't presently exist.
Todd Maute, a partner at CBX, said Amazon always can be counted on to disrupt.
Whole Foods is now owned by a company that didn't exist 25 years ago.
Amazon's extensive buying power could also damage the new partnership's suppliers, as its business model based on lots of products at low prices would push producer prices down.
"The analysts also note that Whole Foods "unusually excited" about the prospect of an Amazon takeover, and they do not think an alternative suitor would evoke the same reaction". The warehouse giant fits this perfectly. With the Amazon deal pending, though, she says, "we just don't know how that's going to pan out and what it means for us, something good or bad".
"Given Walmart's 20%+ share in grocery, why should the company spend $14B+ on what it's already good at (selling food via brick-and-mortar) when the money instead could be used to expand and improve Jet.com and Walmart.com?" In comparison, Whole Foods has a smaller COGS rate (66%), with higher gross margins and 18 days inventory outstanding, illustrating one of the reasons why Amazon has such a keen interest in the retailer.
"Publix can sit back and watch other competitors get bigger by buying subpar grocers and going further into debt by doing it", he said. And the pricing pressure may intensify.
Likewise, JD.com uses data from a partnership with China's hugely popular messaging app WeChat, which has over 930 million users, to build data profiles for a range of brands including baby products, cosmetics and soft drinks. The purchase is a significant step-up in Amazon's assault on traditional grocery retailers.
The acquisition is the second-largest US grocery deal on record, according to Elizabeth Lim, senior analyst for Mergermarket. On the surface, this acquisition may look odd, but Amazon acquiring troubled Whole Foods is more than timely for both companies.
One place where the Amazon deal might have an immediate impact is on the next valuation of Publix stock, due to be released August 1.
"This partnership's gonna change the world", the Whole Foods CEO told employees June 16, according to a Securities and Exchange Commission filing. Apple came in with its own rules, dictating a new regime to an old guard in a completely different sector, and has reaped the rewards.
Sales made online are set to more than double to around 6.6 percent of China's broader grocery market by 2020, compared to around 1.4 percent for US sales by then. "They have had the courage that nearly no other public company has had the courage to, basically, resist the drumbeat of short-term, quarterly earnings that have had us trapped here for a couple of years, as our same-store sales - came down".
Online sales of food and beverage products account for a tiny fraction of e-commerce, but many expect Amazon ownership of Whole Foods to move the needle.
"We do think there is a chance that Walmart makes a bid", the report said.
Like other grocers, Whole Foods is increasingly pushing its store brand products, most notably those under the "365 Everyday Value" name.
Mr. Mackey expressed confidence Amazon will not lower Whole Foods' quality standards. That's not something to get really excited about just yet, however. "They're not stupid enough to go change that".
That could open up Whole Foods to a much broader customer base, said Theodore Waldron, an associate professor of management at Texas Tech University. Seeing the Whole Foods brand on the grocery bag likely reduces this concern, which may encourage online grocery orders.