Amazon is reportedly planning to cut jobs at Whole Foods

Ivan Schwartz
June 19, 2017

And in scoring Whole Foods, the stores of which are usually located in very central, well-heeled or trendy neighborhoods, Amazon now has a platform to test its various ideas. "It will also push the development of the retailer's grocery ecommerce business and potentially lead to creative solutions around delivering its food-to-go offer within the online environment". Using industry share figures compiled by brokerage firm Cowen previous year, and crunching them in University of North Carolina law professor Andrew Chin's useful HHI online calculator, the supermarket industry comes out with an HHI of just 1,267-about half of the 2,500 score the government uses to define a highly concentrated industry. "But the success of Aldi does suggest that there's a reason Wal-Mart should be anxious".

Amazon would also look to change Whole Foods' inventory, introducing its own private-label products to replace items deemed too expensive to have mass appeal, the person with knowledge of the matter said.

IGA supplier Metcash is also not an expected takeover target, Mr Raymond said, due to Amazon's Whole Foods acquisition being about securing a retail footprint in the USA - a move it is not expected to replicate in Australia.

Amazon, with a $500 billion market valuation on estimated sales of $160 billion this year, is trading at a valuation of about 3.1 times sales.

Amazon's shares rose 2.4 percent to $987.71, adding $11 billion to its market capitalization, which in one sense makes the acquisition almost free for Amazon shareholders. That's a direct appeal to one of Wal-Mart's prime target demographics. The retailer has been aggressively lowering grocery prices in certain markets as well, according to reports, and has fine-tuned its private-label offerings to compete with the discounters. "We're playing offense", he said. "Brands are the best place to show price differentiation as well with your customer". In future, this may even facilitate something like five-minute delivery. "Lidl and Aldi, certainly, that's been their trademark over the years, and we'll get a sense of how well that works when they come to the U.S".

Now Amazon has the reach to expand its other business divisions, which may include the ability to order various products online, with pickups available at the grocery store locations. The retailer continues to roll out its online grocery pickup service - which is now available in about 700 stores - and is testing other initiatives like an automated grocery pickup machine near Oklahoma City. While he is more comfortable with where Wal-Mart now stands, McMillon acknowledged there is work to do.

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"I think this acquisition is a concern", he said.

Shares of dozens of supermarkets, food producers, payment processors and shopping malls collectively lost at least $35 billion in USA market value on Friday as the news reverberated across financial markets.

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.

Although buying brick and mortar is consistent with the long-term strategy CEO Jeff Bezos outlined in his 2010 book The Everything Store, the Whole Foods bid demonstrates that Amazon sees more disruptive profit opportunities in the "bread and butter" economy, rather than continually funding negative cash flow to launch disruptive high-tech start-ups.

"This is all win, win, win for consumers", Mulpuru said.

Federal regulators will most likely allow the acquisition to occur, as technically the two companies are not quite true competitors.

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