Amazon stumps up nearly $US14B for Whole Foods Market

Angelica Greene
June 19, 2017

Inc. said yesterday it plans to buy struggling natural and organic food pioneer Whole Foods Market Inc.in a $13.7 billion deal that would give the e-commerce giant 430-plus brick-and-mortar stores to distribute fresh food and other groceries.

And Whole Foods shares climbed 29 percent to $42.68 Friday - more than the $42 deal price - indicating investors expect another bidder may emerge.

The supermarket chain will continue to operate stores under the Whole Foods Market brand. Until now, Amazon has largely focused its grocery efforts around its Amazon Fresh subscription service, which promises quick food delivery for online orders.

Walmart dropped 5.4 per cent, haemorrhaging $12.9 billion in market value. On Friday, WalMart announced it is buying men's online clothing retailer Bonobos for $310 million.

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.

But Instacart is also a competitor to Amazon's growing grocery delivery service, AmazonFresh.

When Jana Partners LLC in April said it had raised its stake in Whole Foods in April and pushed for a sale of the company, Whole Foods interviewed several investment banks to hire an adviser to help defend against the activist hedge fund.

Groceries are already a fiercely competitive business, with low-priced rivals like Aldi putting pressure on traditional supermarket chains and another discounter, Lidl, opening its first US stores just this week.

Whole Foods' size also fits perfectly for the Amazon acquisition.

Amazon sent shockwaves through the business community Friday when it announced its purchase of supermarket chain Whole Foods.

The aquisition means that Amazon will have further expanded their competition with major retailer-grocers such as Wal-Mart and Target, in addition to competing with traditional grocers and pharmacies.

Meanwhile, in a letter to its customers, Whole Foods Market, Inc. It was recently granted a patent for technology that would block shoppers from comparing prices using their mobile devices while they are in stores. The shopper's Amazon account gets automatically charged.

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"I think that this takes all of the pressure off Whole Foods and gives Whole Foods the opportunity to revitalize 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.

Amazon spokesman Drew Herdener said plans do not include reducing jobs as the result of the deal and that the company does not plan to automate Whole Foods cashiers jobs with Amazon Go technology. Whole Foods will keep operating stores under its name.

Whole Foods, often derided as "Whole Paycheck" for its high prices, could see its reputation change if Amazon, a master at undercutting its brick-and-mortar rivals, passes any savings from automation to customers.

Whole Foods will run as a wholly independent subsidiary of Amazon.

Instacart and Whole Foods did not immediately respond to request for comment.

The deal would give Amazon control of 430-plus U.S. Whole Foods stores, almost all of which are in neighborhoods more affluent and younger than America as a whole, noted David Portalatin, the NPD Group's vice president of food industry analysis. You point out that 24 percent of millennials bought something from Whole Foods a year ago.

The Times characterized Amazon's latest step as setting up a clash of the titans with Wal-Mart to be the seller of pretty much everything you buy. These three have begun offering some of what Whole Foods offers, forcing the supermarket chain to cut prices. "Whole Foods is expensive enough".

"These guys just want to sell us, because they think they can make forty or fifty per cent in a short period of time", Mackey told Texas Monthly's Tom Foster.

"Instead of deliver to my home, why not just come down here?"

"I like picking out my own stuff", Hall said. Certainly, it would appear to Cantillon that Bezos sees the future as slightly more nuanced than the vista of couch-bound online shoppers ordering everything from fast food to films online.

There's also the "grocerant" trend - a blending of grocery stores and restaurants.

Other reports by GizPress

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