Thursday, 20 September, 2018

Whole Foods Markets to be Acquired by Amazon

Laurie Berry | 19 June, 2017, 13:56

So news that Amazon has bought United States supermarket chain Whole Foods for $13.4bn is interesting but perhaps not surprising.

The deal represents a dramatic turn in strategy for Amazon, which has offered food delivery through its AmazonFresh service for a decade, but has not made a major dent in the $700bn grocery market.

"They're doing an wonderful job and we want that to continue", Amazon founder and CEO Jeff Bezos said.

The deal unites the online juggernaut with the grocery store chain that fell behind as the organic and natural foods it helped popularize expanded to more locations and shoppers found "good enough" alternatives.

"I think that this takes all of the pressure off Whole Foods and gives Whole Foods the opportunity to revitalise that business and, of course, it stems the criticism from all of these activist investors", said Neil Saunders, managing director of GlobalData Retail in NY.

Last Friday, when Amazon announced the acquisition, shares of Walmart as well as Target, Kroger, and Costco all tumbled.

The companies expect the deal to close by the end of 2017, subject to approval by Whole Foods Market's shareholders and regulators.

The $42-per-share, all-cash deal, expected to close later this year, includes Whole Foods' net debt and represents about a 27 percent premium to its closing stock price on Thursday.

"The ramifications for all of retail are seismic - not just retailers that sell grocery, but for everyone", Chuck Grom of Gordon Haskett said. He's got professional respect for Amazon for how efficiently and successfully it runs its business. Shoppers simply pick the items they want off the shelves and leave the store.

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Whole Foods would also pay a $US400 million termination fee to Amazon if the grocer receives a better offer or the board of directors pulls the company out of the deal.

How quickly items get delivered "is going to have to be improved considerably" for customers to order something online instead of going to the prepared-foods counter at the supermarket, she said.

Amazon could try to cut operational costs at Whole Foods by using the same types of robots that already move inventory around at its e-commerce fulfillment centers.

Alina Gura of Newington who was visiting the Whole Foods store with her almost two-year-old daughter, said she appreciates the quality of the food, particularly its organic products. But its stance could attract rival grocers to partner with Instacart in a broader bid to resist Whole Foods' new corporate resources. Stone sees the possibility that Whole Foods CEO John Mackey could do what he's wanted to do, expand the chain to about 1,000 stores from its current stable of more than 460.

About 450: Number of Whole Foods stores across the country.

Some also speculated that a European grocery conglomerate could come knocking on Whole Foods' door, though Amazon's growing power would make it a formidable competitor to take on.

"Amazon is known to drive down prices and make the shopping experience more efficient", Wu said.

"It's too soon to say if we would reconsider or change anything" about the relationship with Amazon Prime Now, Hardy said.

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