Amazon buying Whole Foods in bold move into brick and mortar

Chelsea West
June 27, 2017

In a convergence of online and traditional retailing, Amazon is buying Whole Foods Market, Inc., for $13.7 billion in cash. The deal is expected to close in the second half of 2017 pending regulatory approval, the company said in a news release Friday.

Armed with giant warehouses, shopper data, the latest technology and almost endless funds - and now with Whole Foods' hundreds of physical stores - Amazon is set to reshape a US$800 billion grocery market that is already changing rapidly.

Amazon is making a bold expansion into physical stores with a $13.7bn deal to buy USA grocery chain, Whole Foods. Meanwhile, the more than 460 Whole Foods stores in the U.S., Canada and the United Kingdom could be turned into distribution hubs - not just for delivering groceries, but also as pickup centers for online orders.

News of the deal sent shares of traditional retailers, such as Wal-Mart, Target, Costco and Kroger, tumbling as much as 13 percent as investors tried to digest the implications of an Amazon-backed grocery chain.

Amazon is considering extending the cost-cutting effort with the no-checkout technology it's developing at its Seattle convenience store, "AmazonGo", according to the person familiar with the matter, who asked not to be named because the plans are private. Amazon's move aims at the heart of the Bentonville, Arkansas-based retail giant's business - groceries, which account for 56 percent of Wal-Mart's $486 billion in revenue for the year ending January 31. So, no - you won't be greeted by robots when you go inside a Whole Foods outlet.

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.

The supermarket chain will continue to operate stores under the Whole Foods Market brand. Wal-Mart reported $6.9 billion in cash and equivalents and $20.9 billion in free cash flow at its year ended January 31.

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The deal had a dipping effect at the shares of other supermarkets, food producers, payment processors and shopping malls collectively of around $35 billion in U.S. market value on Friday as they received the news of the deal.

Wal-Mart is offering curbside pickup of online grocery purchases at 700 locations, with 300 more planned by year end.

Light added, "Even customers who love Whole Foods have given it the nickname 'Whole Paycheck.' And Amazon will help that go away". "It's a warning shot for the food retail industry that competition likely heightens on top of an already challenging backdrop".

Kyle Bunch is with R/GA, a marketing, advertising and consulting firm right across from the Whole Foods headquarters.

Some investors may be wondering whether Amazon could disrupt grocery stores the way it upended the bookstore business.

Walmart's been getting around this problem by experimenting with initiatives like having store employees drop off packages on their way home from work or load orders into Ubers.

Other reports by TheSundaySentinel

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