Amazon buying Whole Foods in $13.7 billion deal; grocery stocks tumble

Supermarket stocks and shares of companies that sell groceries are now spoiled in the eyes of investors after Amazon announced a almost $14 billion purchase of Whole Foods Market on Friday.

News of the deal sent shares of traditional retailers such as Walmart, Target, Costco and Kroger tumbling as much as 13 per cent as investors tried to digest the implications of an Amazon-backed grocery chain.

Amazon already offers grocery-delivery services in five markets, but the Whole Foods purchase would let it expand to many more.

A slew of other retailers' shares also fell on the news, including shares of Kroger Co, Target Corp and Europe's Tesco Plc and Carrefour. This would give a substantial boost to Amazon's services for one- and two-hour Prime Now delivery, as well as its Fresh grocery delivery service, both of which are available in Boston. Meanwhile, the more than 460 Whole Foods stores in the U.S., Canada and the United Kingdom could be turned into distribution hubs - not just for delivering groceries, but also as pickup centers for online orders. The online retailer had been experimenting with brick and mortar retailing in recent years, but Whole Foods' sagging stock price provided the opportunity to take over an existing business, rather than build one from the ground up.

Bay Area Whole Foods shoppers had different views about how Amazon's biggest acquisition might impact their grocery-shopping decisions.

Shoppers will continue to have access to Whole Foods through Instacart while the Amazon deal is going through the approval process, a source familiar with the partnerships told CNN Tech. Whole Foods whose fleet of stores now numbers 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.

Amazon could cut costs if the technology gets good enough to deploy at Whole Foods locations.

Amazon's shares were up 3% at $994.45. Walmart, the world's biggest retailer that generates more than half of its revenue from groceries, lost more than $11 billion in market value.

Will my neighborhood Whole Foods disappear?

Amazon also has been testing automation technology at a Seattle convenience store that's now open only to Amazon employees.

John Mackey will continue as chief executive of Whole Foods, and the company's headquarters will remain in Austin, Texas.

Whole Foods sits on the cusp of junk status with a Baa3 rating from Moody's and a BBB minus from S&P.

Grocery stores are under more pressure to compete based on convenience, especially as more retailers and startups introduce food options such as meal kits, low-priced snacks and organic groceries, according to a report released earlier this year by Jones Lang LaSalle, a commercial real estate firm.

Whole Foods becomes a convenient place for Amazon customers to pick up items they ordered so they do not have to wait for delivery.

West Hartford resident Nancy Kennedy, 88, who stopped by the Whole Foods store to shop, said she does not go online because she's not familiar with digital technology.

  • Zachary Reyes