Amazon buying Whole Foods in $13.7 billion deal

20 June, 2017, 12:07 | Author: Leticia Walters

Friday's announcement that e-commerce giant would buy the Whole Foods grocery chain had major implications for grocery delivery startup Instacart, which has pitched itself for years as a way for brick-and-mortar retailers to resist competition from Amazon.

Online retail giant Amazon made a dramatic push into brick-and-mortar retail Friday with the almost $14 billion purchase of Austin-based organic grocery chain Whole Foods Market. But Whole Foods has lost market share to rivals Kroger Co, Wal-Mart Stores Inc, Costco Wholesale Corp and others that have elbowed into the natural and organic segment Whole Foods pioneered.

Amazon has moved heavily into the grocery delivery business, offering food through its AmazonFresh service. 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 as pickup centers for online orders.

SELYUKH: For Amazon, the deal gives it a physical presence in hundreds of locations but also places Amazon smack in the middle of a massive consumer goods market - the stuff people buy over and over again for their entire lives.

Such a fate would be both a symbolic and material blow for Instacart since Whole Foods was its first national grocery partner in 2014. It announced Friday that it's buying online men's clothing retailer Bonobos for $310 million, following a string of online acquisitions including ModCloth and Moosejaw.

Amazon also has been testing automation technology at a Seattle convenience store that's now open only to Amazon employees. Amazon (amzn) shares surged more than $23 Friday, an increase of about 2.4%. Whole Foods will still operate stores under its name and will continue to be headquartered in Austin, Texas.

Hauptman said millenials will likely change how food stores market and sell their products.

With a 9% stake, much of it accumulated relatively recently, Jana Partners was Whole Foods' second largest investor.

Feinberg also says that Amazon has a test store called Amazon Go in Seattle that is displaying how Amazon does groceries. "That is the reality today at Amazon, and it will no doubt become the reality at Whole Foods". Whole Foods' shares traded in the mid-$30 range for May and early June.

The online retailer had been experimenting with brick and mortar retailing in recent years, but Whole Foods' sagging stock price provided the opportunity to take over an existing business, rather than build one from the ground up.

"Amazon placed their opening bid near the top of the range given by analysts, but for strategic reasons I think they will be chased higher by at least one other bidder", Burgess noted. For example, when it comes to buying fresh food, we like to feel, see and touch the fruits and vegetables we're buying.

"The retail sector is used to change, but every so often an event occurs that shakes the industry to its core", said Neil Saunders, managing director of research firm GlobalData Retail. CEO John Mackey will also retain his job.

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