Amazon Deal For Whole Foods Could Bring Enormous Growth for Amazon
By Lehigh Acres Gazette Sources AP, ABC News and The New York Times
Amazon said on Friday that it had agreed to buy the upscale grocery chain Whole Foods for $13.4 billion, as the online retailer looks to conquer new territory in the supermarket aisle.
For Amazon, the deal marks an ambitious push into the mammoth grocery business, an industry that in the United States accounts for around $700 to $800 billion in annual sales. Amazon is also amplifying the competition with Walmart, which has been struggling to play catch-up to the online juggernaut.
Amazon could try to use automation and data analysis to draw more customers to stores while helping Whole Foods cut costs and perhaps prices. Meanwhile, the more than 460 Whole Foods stores in the U.S., Canada and the U.K. could be turned into distribution hubs — not just for delivering groceries but as pickup centers for online orders.
Walmart, which has the largest share of the U.S. food market, has already been pushing harder into e-commerce to build on strength in its stores and groceries. It announced Friday that it’s buying online men’s clothing retailer Bonobos for $310 million, following a string of online acquisitions including ModCloth and Moosejaw.
But if Amazon can be the one-stop shop for everything — groceries had been one of the key missing elements — customers would have even less of a need to go to Walmart or elsewhere.
Amazon already offers grocery-delivery services in five markets, but analysts say the expansion is tough because its current distribution centers are set up for dry goods, not perishables. Just two years ago, Whole Foods CEO John Mackey told Bloomberg BusinessWeek that Amazon’s foray into grocery delivery would be “Amazon’s Waterloo.”
But it was Whole Foods that fell behind as shoppers found alternatives to the organic and natural foods it helped popularize since its founding in 1978. Whole Foods has seen its sales slump and recently announced a board shake-up and cost-cutting plan amid pressure from activist investor Jana Partners.
Groceries are already a fiercely competitive business, with low-cost rivals like Aldi putting pressure on traditional supermarket chains and another discounter, Lidl, opening its first U.S. stores just this week. Whole Foods itself had launched an offshoot chain named after its “365″ private label brand in a nod to the popularity of no-frills chains.
The Amazon-Whole Foods combination, expected to close by the end of the year, could put even more pressure on those chains and other big grocery sellers.
Dominant players like Walmart, Kroger, Costco and Target now have to look over their shoulders at the Amazon train coming down the tracks.