Amazon Drops a Retail Bomb: Amazon Buys Whole Foods Market
On Friday June 16, 2017, Amazon publicly announced their plans to purchase Whole Foods Market for a purchase price of $13.7 billion (excluding debt, the deal is valued at $13.39 billion).
Through this acquisition, Amazon is positioned to gain immense market share via acquiring 456 brick and mortar Whole Foods Market locations throughout the United States, Canada, and United Kingdom. Amazon has agreed to pay $42 per share in cash to acquire Whole Foods, a 27% premium over Thursday’s closing stock price for the grocer. This major acquisition, expected to close during the second half of 2017, will increase the competition with the world’s largest retailer, Walmart, which dominates the grocery industry and has recently been innovative in expanding its online retail market. On Friday, the news of the Amazon-Whole Foods deal has pushed Wal-Mart shares down 4.7 percent, Kroger shares down 9.2 percent, and Costco shares down 7.2 percent. While these declines affected major grocers, this could potentially result in devastating effects for smaller grocers.
Recently, Whole Foods has been struggling with competition as other grocers have increased their inventory in organic and natural foods while pricing competitively. As a result, Whole Foods has been losing market share due to their unwavering high prices. Amazon on the other hand, has been trying to expand its grocery sector for the past decade through its Amazon Fresh program which delivers produce to consumers. However, the program hasn’t been as successful as their online retailing due to the majority of consumers prefer to purchase their produce in person. Through this acquisition, Amazon has the red carpet to potentially dominate both the retail and grocery sectors. Amazon’s reputation of pricing aggressively should alleviate concerns for Whole Foods high pricing and poses a threat to competitors as they have now positioned themselves on Supermarket turf. Amazon will continue to operate stores under the Whole Foods Market brand, headquartered in Austin, Texas, and John Mackey, Whole Foods’ chief executive officer, will remain in position.
The potential uncertainty of the acquisition lies within the different cultures of both companies. Amazon’s culture has been relatively limited personal interaction with its customers, whereas Whole Foods prides its brand on delivering exceptional customer experience in their physical stores. Amazon is also entering new territory with operating grocery stores which they have never done before. It is expected that through the new Whole Foods stores operating under Amazon, Amazon will display their electronic gadgets such as the Amazon Echo and Fire tablets, which is expected to pose a major threat to Walmart, as they also sell electronics. This acquisition could be a game-changer in the grocery and retail sectors as shifts in consumer behavior are at an all-time high and Amazon’s vision is unstoppable with their recent opening of physical bookstores and big city daily newspaper. This purchase sparks both fear to competitors and hopefulness to consumers and is expected to change the future of grocery shopping.
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