Ocado Shares Top European Benchmark on Amazon Deal Speculation

Ocado Shares Top European Benchmark on Amazon Deal Speculation

Amazon’s $13.7 billion acquisition of Whole Foods could mean big changes for the way people buy groceries – and just about everything else.

Amazon will pay 13.7 billion dollars (12.5 billion euro), more than 1.5 times its stock value and the largest sum it ever paid for an acquisition. “I have purchased from Amazon for five years”. It is not strictly limited to food but to all groceries instead, and it simply allows for a wider selection and faster delivery time of such products than normal Amazon. But Chuck Grom, a retail analyst at Gordon Haskett Research Advisors, noted that Amazon’s next target maybe in the discount category.

Amazon started its experiment with brick and mortar stores when it opened a store in Seattle called Amazon Books in November 2015.

Roger Davidson, who oversaw Wal-Mart’s global food procurement and now is president of Oakton Advisory Group, said the deal will reduce Wal-Mart’s brick-and-mortar advantage. Grocery store operations are among the largest in most Walmart stores.

FTSE 250-listed Ocado reported in March that gross retail sales in the 13 weeks to February 28 rose 13.1% from the same period previous year to £384.7 million ($466.86 million), the same pace of growth the group recorded in the 2014 to 2015 period. According to World Economic Forum, Americans spend 6.4 percent of their household income on food.

Amazon.com has proven its dominance in the online retail space, where the company is viewed as a disrupter.

The Amazon-Whole Foods combination, expected to close by the end of the year, could put even more pressure on those chains and other big grocery sellers.

Now, though, it has made one of its biggest acquisitions in history by picking up U.S. food chain Whole Foods Market for $13.7 billion (around £10.7 billion) including net debt.

Walmart, on the other hand, has been juggling in the opposite direction. “Whole Foods had an expansion plan to get to 1,200 stores but has been stymied by activist investors and flat growth”. In preparation for the grocery price war, Wal-Mart in recent months has cut grocery prices, improved fresh food and meat offerings, modernized shelving and lighting in its grocery aisles, and expanded its online grocery pickup service. While they have talked up the size of their store networks, many analysts say Amazon will eat away at the earnings of Australian retailers, including supermarket operators.

The upmarket supermarket chain has about 460 stores in plummy urban locations across 43 states in the U.S.

The acquisition could pose a bigger threat to Target, which has been building smaller stores in cities like NY to attract the affluent urban shoppers coveted by Whole Foods and Amazon, said Kurt Jetta, chief executive officer of TABS Analytics, a consumer products research firm. Whole Foods, for example, generated a net margin of 3.2% past year. “More broadly, as a well-established retailer focused on the lucrative health and wellness market within grocery, Whole Foods is perfectly positioned to give Amazon a crash course in how food retailing really works on the ground”.

“This sale exemplifies Amazon’s influence over industrial real estate markets nationally but more so in New Jersey”. One day, these stores might even serve as launch centers for Amazon’s delivery drones.

After US, Amazon is apparently looking forward to disrupt the Indian grocery industry too.