Amazon is making a bold expansion into physical stores with the $13.7 billion deal to buy Whole Foods, setting the stage for radical retail experiments that could revolutionize how people buy groceries and everything else.
Amazon said today it’s buying the supermarket Whole Foods in a deal valued at almost $14 billion.
“I anticipate that Amazon should be able to lower the cost of Whole Foods and better enable them to compete in that market and start to bring some of those great organic products that people have liked without necessarily having to capture their whole pay check”, he said. “Whole Foods Market has been satisfying, delighting and nourishing customers for almost four decades”. The move will give Amazon a brick-and-mortar position in the sector for the first time with over 400 stores in some of the nation’s most up-and-coming towns and neighborhoods. Those stores would solve much of Amazon’s “last-mile” delivery challenge for fresh groceries – perhaps the top reason it hasn’t made a dent in the grocery shopping of the 60 percent of millennials who buy other items from Amazon, he said.
Whole Foods had fiscal 2016 sales of about $16 billion. This year, Amazon is expected to the ninth largest retail grocery. The company had sales of about $16 billion past year.
The Whole Foods acquisition is also scary for grocery workers.
In October, reports surfaced that Amazon was planning to build its own grocery stores.
With Whole Foods, Amazon gets an established business that it can transform through its technology and supply network expertise. Amazon’s shares rose 2.4 percent to $987.71, adding $11 billion to its market capitalization, which in one sense makes the acquisition almost free for Amazon shareholders.
Amazon also has been testing automation technology at a Seattle convenience store that’s now open only to Amazon employees. “Why is Amazon going to let a third party vendor take margin off of their sale?”
Amazon already offers grocery-delivery services in five markets, but analysts say expansion is tough because its current distribution centers are set up for dry goods, not perishables.
The acquisition is seen as a move by Amazon to more aggressively target the grocery section of retail has proven more stubbornly resistant to digital channels. The company reshuffled its board and appointed a new chief financial officer in May after reporting the seventh-straight quarter of falling same-store sales, a key indicator of retail performance.
Whole Foods and Amazon share some of the same demographic trends, according to data from the NPD Group.
Meanwhile, in a letter to its customers, Whole Foods Market, Inc.
“It is hard to say what Amazon’s online strategy will be for Whole Foods“, she said. The stores could teach cooking skills, hold classes and educate about food.