Experts Weigh In: Amazon to buy Whole Foods for $13.7 billion
Chuck Grom, analyst, Gordon Haskett analyst:
“The ramifications for all of retail are seismic – not just retailers that sell grocery, but for everyone. Also, we wonder if purchasing the high-end grocer represents part one of a two-part act on Amazon’s part to expand its grocery arm. Said differently, the acquisition gives CEO Jeff Bezos a weapon to attract a customer he largely already caters to (the majority of PRIME members make more than $100K per year). But if the goal is to fully compete against Wal-Mart (and the low-end), then could Dollar General be next on Amazon’s buying list to go after an arguably larger part of the U.S. population? Stay tuned.”
Brent Franson, CEO of Euclid Analytics
"Walmart acquired Bonobos for $300 million today. That particular bit of industry noise was muted by the reverberations of Amazon’s sonic boom. Setting aside the cost, the two deals emphasize the differences between the companies. In Bonobos, Walmart acquired a symbolic retail disruptor—which in truth is not actually that disruptive. It feels similar to the Jet.com and Modcloth efforts. It’s noteworthy in passing but not in a “sit up and take notice” way.
If Bonobos was another way for Walmart to say, “We’re making real moves in online retail,” then today’s Amazon’s Whole Foods announcement was Amazon firing back with, “We’re going to own all of retail.” One was a bold declarative; the other, a more delicate statement. Both companies are making inroads to capture more of the other’s traditional space: Amazon moving offline, Walmart going online. But the former is getting there much more quickly and rightly earning kudos for both strategic and effective acquisitions."
Deborah Weinswig, managing director at Fung Global Retail & Technology:
“In terms of what will Amazon do with Whole Foods, we think Whole Foods' premium positioning puts a natural cap on how much Amazon can grow it in the U.S. market, where it is already the eighth largest grocery retailer. So we could well see Amazon focus on growing the chain internationally. For example, Whole Foods has only a handful of stores in the UK, so this could be one country where Amazon chooses to grow the chain.
The acquisition will also boost Amazon’s capabilities in grocery more generally, possibly enabling it to offer in-store click-and-collect for online grocery orders, and likely bringing more choice in specialist and fresh foods to Amazon’s online grocery offering.
Whatever Amazon does with Whole Foods, this acquisition proves beyond any doubt that Amazon is serious about tackling the grocery category—not only online but in brick-and-mortar, too.”
David Portalatin, VP, industry analysis, food, The NPD Group:
“This deal gives Amazon control of 431 (Whole Food) stores, nearly all of which are in neighborhoods that are more affluent and younger than America as a whole. Those stores solve much of Amazon’s “last-mile” delivery challenge for fresh groceries — which is arguably the biggest single reason that Amazon has not been able to make a dent in the grocery shopping of the 60% of millennials who already buy other items from Amazon.
Fresh foods are the final frontier for Amazon. And figuring out how to get it to your front door is the ultimate in convenience for consumers. In order for Amazon to get the volume growth they are looking for, fresh foods has to be part of the equation. This deal gives them credibility with consumers and a major foothold in that space.”
Kelly Sayre, analyst, retail/CPG, IHL Group
“Amazon’s greatest Achilles heel right now is that it is losing $8 billion a year on shipping costs. This deal gives Amazon 431 (Whole Foods Market) locations nationwide, in mostly higher income neighborhoods, for package pickup and returns. Keep in mind, shipping to the door is causing many problems for Amazon with theft and some apartment buildings in inner cities are now overrun with packages causing a fire hazard.
The second biggest issue that is full of friction for consumers buying from Amazon is the cost and time to make returns. Finding a box, being charged for shipping if the reason is not correct. Customers can now simply bring the opened box items with receipt to Whole Foods and they will take care of returning items in bulk. This removes friction from the return process and allows for Amazon to also mitigate some of the advantage that Walmart has had with ship to store (and offering discounts).”
Madeline Hurley, industry analyst, market research firm IBIS World:
“The acquisition will further immerse Amazon in the $611.9 billion supermarket and grocery stores industry, where Whole Foods holds a 2.7% market share.
Although industry revenue is only set to rise at an annualized rate of 0.8% over the five years to 2022, the transaction will allow the online retail giant to boost not only its grocery sales, but expand its brick-and-mortar presence."
This is not the first time Amazon has dabbled in brick-and-mortar retailing. Over the next five years as the retail sector becomes even more competitive, retail powerhouses like Amazon and Walmart are expected to invest in both online and physical stores in order to maximize their market share.”
Ryne Misso, director of marketing, Market Track:
“Amazon has made a variety of moves over the past several years to boost their online grocery business, from their launch of Amazon Fresh, to their partnership with Instacart. However, consumer behaviors have made growth in the grocery space more cumbersome for Amazon.
“A recent consumer survey conducted by Market Track reported that only 19% of consumers purchase groceries online, and only 14% use click and collect services. After the deal is complete, Amazon will have over 400 grocery store locations in major markets across the U.S. Combine these new store locations and Whole Foods differentiated product assortment with Amazon’s industry-leading online delivery infrastructure, and the acquisition is likely to position Amazon quickly as a power grocery player, and should further enable them to transform how Americans shop for their weekly groceries."
Bahige El-Rayes, principal, retail practice, A.T. Kearney:
"With this move to acquire Whole Foods, Amazon is reinvigorating omnichannel and what omnichannel means, and shows once again that they are serious about owning every access point to the consumer, whether through Echo, Dash, Prime, or brick-and-mortar.
This is a huge disruptor for the grocery sector, on both ends of the market. It means that we’ll be seeing two main categories of winners, first, those who are investing in ecommerce, the Amazons and Walmarts, and secondly the discounters, like Lidl and Aldi. And everyone else will be under pressure, including traditional groceries and small online players.
For these other players, we say, first, double down on ecommerce, secondly double down on fresh, the fastest grown segment of the grocery store, thirdly, focus on click and collect. These are all ways to protect margin."
Adrien Nussenbaum, U.S. CEO and co-founder, Mirakl:
“Whole Foods has over 430 stores globally; meaning Amazon has acquired more than 430 new properties to use as distribution centers. Retailers already concerned about Amazon's strength in digital commerce now need to contend with the reality: Amazon is coming after brick-and-mortar, too.
I talk with retailers every day who are in denial of Amazon’s impact on their business. But Amazon understands that retail and distribution have changed forever. It's no longer about buying and reselling products, but about creating incredibly valuable ecosystems. This news changes everything, and from my perspective there can be no more denying the Amazon effect, and how the company has completely changed retail.”
Amazon eyes messaging startup
Amazon may be looking to bolster its enterprise services offering with an innovative addition.
Corporate chatroom startup Slack Technologies has received inquiries of late about a potential takeover from technology companies, including Amazon. The company is valued at approximately $9 billion, according to Bloomberg.
Sources said in the report that the deal would help Amazon bolster its enterprise services, helping it to compete with rivals like Microsoft and Google. Slack’s chatroom technology would also augment Amazon’s ever-growing services portfolio. For example, the company’s cloud-hosting unit, Amazon Web Services, in February introduced a paid-for video and audio conferencing service — Amazon Chime — that lets users chat and share content.
The possible deal comes on the heels of Amazon’s blockbuster purchase of Whole Foods Market on Friday. The online giant acquired the grocer in an all cash transaction valued at $13.7 billion, or $42 a share.
The transaction is subject to approval by Whole Foods Market's shareholders, regulatory approvals and other customary closing conditions. The parties expect to close the transaction during the second half of 2017.
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Commentary: Amazon-Whole Foods deal ‘potentially terrifying’ for other grocers
The retail sector is used to change, but every so often an event occurs that shakes the industry to its core. Amazon's acquisition of Whole Foods is one of those.
On the surface, the purchase — which comes with a $13.7 billion price tag — is surprising. However, there is an inherent logic in the move which, in our view, brings benefits to both businesses.
For Amazon, Whole Foods fulfills, at a stroke, its ambition to be a serious player in the grocery market. While Amazon could have built up its presence organically, it would have been both costly and time-consuming to bring the business to scale. In our view, an online-only operation would also have suffered from perilously low margins and would have damaged Amazon's profitability as it scaled up.
Whole Foods changes that dynamic. While it won't alter Amazon's ambitions in digital or put a stop to innovative experiments like AmazonGo, it puts the food business on a different and steeper growth trajectory. In essence, it gives Amazon an established business that it can transform through its technology and supply chain expertise. It also gives Amazon a well-known and well-regarded brand that can, ultimately, be sold across Amazon platforms.
Longer term, Whole Foods also provides Amazon with a well-balanced and nicely distributed physical presence that allows it to offer click-and-collect and other services which are linked to the rest of its business. And there can be little doubt that Amazon will develop a proper online presence for Whole Foods which, at the moment, relies on third parties like Instacart for online ordering.
For other grocers, the deal is potentially terrifying. Although Amazon has been a looming threat to the grocery industry, the shadow it has cast has been pale and distant. Today that changed: Amazon has moved squarely onto the turf of traditional supermarkets and poses a much more significant threat. The only mitigation is that the more niche appeal of Whole Foods will, at least for the time being, limit the threat to other players.
However, at a time when grocers are facing margin compression from the expansion of discounters like Lidl, the prospect of having to spend more on in-store technology and digital platforms to keep up with the Amazon behemoth is highly unattractive.
For Whole Foods, the deal will come as a relief. The one well-regarded grocery chain has been under pressure for a couple of years and has struggled with sales, margins, and profits. Amazon is effectively a white-knight that has come to its rescue.
In areas like supply chain, where Whole Foods needs to improve efficiency, Amazon will be able to use its expertise to reduce costs. For things like in-store experience, Amazon will apply innovative thinking to both streamline operations and improve customer experience. On the sales front, putting Whole Foods into the Amazon ecosystem will be helpful for revenues. All of these benefits are things that Whole Foods would have struggled with alone.
That said, a big problem for Whole Foods is that the brand is not delivering in areas like taste and food innovation. These are not Amazon's core areas of expertise, so the acquisition will not automatically remedy the issues. If Whole Foods is to be successful over the longer term, Amazon will need to get to grips with something Whole Foods itself has been unable, or unwilling, to fix.
As much as there is a logic for both parties, there is a question as to why Amazon picked Whole Foods rather than another target. In our view, it comes down to scale, brand, and potential. Regarding scale, Whole Foods is big enough to make a difference to Amazon, but not too big to digest and be unaffordable. In terms of brand, Whole Foods is well regarded and gives Amazon a unique and differentiated offer it can work with. Potential is the most significant reason, however: in Whole Foods, Amazon likely sees a good business that needs help to reach its full potential. Amazon feels it can provide that help, and in so doing establish itself as a force to be reckoned with in grocery.