Goldman Sachs, mocked by prospective client Whole Foods, ended up advising Amazon
- Author: Zachary Reyes Jun 25, 2017,
Jun 25, 2017, 10:29
He said employees could expect cultural changes at the grocer as well, but provided his staff with few specifics of changes to come other than that the company would adopt Amazon's relentlessly "customer-centric" approach.
That could be bad news for Costco, whose shares slid as much as 3% in trading Monday.
Those big-box competitors were already disadvantaged by Amazon's captive audience, an estimated 80 million Prime members, who could theoretically order groceries online or task Alexa, Amazon's virtual assistant, to prepare a delivery or arrange for a pickup at the nearest Whole Foods.
According to analysts at Cowen & Co., Amazon, which is expected to be the ninth largest grocery retailer in the US this year thanks to Amazon Fresh, would become the third largest with the acquisition of Whole Foods. Summary Amazon trades at 2.8x EV/revenue and 24.7x EV/EBITDA on the firm's published 2017 estimates. "He'll be very careful tinkering with anything that could hurt the value of the brand".
"Many will do anything to either make this acquisition more costly for Amazon, or prevent the asset from landing in Amazon's lap", Short wrote in a note to clients.
Amazon, like Wal-Mart, is known for using massive scale to offer low prices on everything from shoes and shirts to electronics and books. Walmart also has the advantage of appealing to lower-income consumers and having stores within 10 miles of 90% of most American homes. Whole Foods also declined to comment. Amazon did not respond to a request for comment.
Amazon hopes that the move will help differentiate Whole Foods from other grocers.
TheStreet visited three grocery locations in New York's financial district, and of those three, Whole Foods noticeably thrived.
But Whole Foods has struggled in recent years, and the $33.06 price was about half where Whole Foods stock was trading at its peak in October 2013.
Adrienne Anderson, at a Whole Foods in Savannah, Georgia, says she shops at Whole Foods nearly exclusively for meat and fresh produce "because of the quality and selection" and because fruits and vegetables are locally sourced.
Amazon has been longing for a piece of the action and despite the launch of AmazonFresh over a decade ago, it is an industry that Jeff Bezos has found hard to get into. It started its fresh food online business a decade and has gained no traction whatsoever in the US, Canada and Britain. "He could make some shocking changes that could be deadly to some of these [existing] brands". Amazon knows this, and its acquisition of Whole Foods is among other things an acknowledgment that the e-commerce giant needs a brick-and-mortar footprint to compete in the grocery space.
In a town hall meeting the day the deal was announced, Whole Foods CEO John Mackey shed light on how the deal went down - and it's unorthodox.