Amazon to Enter Grocery Business with Whole Foods Purchase

Ivan Schwartz
June 26, 2017

Whole Foods Market, founded in 1978, is a natural and organic foods supermarket and certified organic grocer with approximately 87,000 staff members across the company. The deal is subject to approval from both the regulators and shareholders and the company expects the deal to close in 2H17.

"We've seen Amazon expand recently into physical, brick-and-mortar stores, for example their new bookstores and Amazon Go, their small grocery store experiment that doesn't require a customer to go through check out", says Elizabeth Lim, senior analyst for Mergermarket. The deal followed a scrape with activist investor Jana Partners, which had threatened to shake up Whole Foods' board and overhaul the chain.

The reason for the violent stock market reaction to the Amazon acquisition of Whole Foods is obvious: while the deal isn't final - it's possible other bidders will emerge - Amazon is clearly willing to make a bold move to get into the offline grocery business and when such a move is officially consumated, it will be highly disruptive.

Jeff Wilke, Amazon's CEO of Worldwide Consumer who was on hand at the town hall last week, affirmed that Amazon did not want Whole Foods to change its standards on food quality, according to the transcript.

The firm rates AMZN Overweight. Amazon executives have remained essentially silent in the days since announcing the acquisition of Whole Foods. "That's going to make us a lot better company, a more competitive company", he said. "The company didn't say which banner, Whole Foods Market or 365 by Whole Foods, would lead that growth", Michelle Grant, head of retailing at Euromonitor, wrote to Retail Dive in an email.

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"Every grocery store out there now is having a conversation about how much they can afford to spend to keep Amazon out of the space", said Brian Culpepper, a portfolio manager at James Advantage funds.

According to Mergermarket, the bid is not only one of the decade's top grocery deal in the U.S., but is also the fourth largest United States deal in the retail subsector. Having used ecommerce and digital technology to thoroughly disrupt retailers, which have already closed approximately 3,000 stores this year, Amazon is now in a prime (no pun intended) position to swoop in and use bricks and mortar to advance its goal of dominating retail.

"I dreamed that we merged with Amazon".

Amazon is known for taking the long view. More seriously, he said it was too early to discuss these kinds of details, but highlighted that one of Amazon's core values take Whole Foods is likely to embrace is frugality. They really are. And one of my takeaways is that, by God, we're gonna become as customer-centric as Amazon. Shoppers could pick up their purchases at a Whole Foods store near them the same way they're doing under the AmazonFresh Pickup program.

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