Published: Mon, June 19, 2017
Economy | By Annette Adams

Amazon-Whole Foods deal hammers grocery stores; Dow ticks up

Amazon-Whole Foods deal hammers grocery stores; Dow ticks up

Amazon.com Inc said late Friday it would buy Whole Foods Market Inc for $13.7 billion, in an embrace of brick-and-mortar stores that could turn the high-end grocer into a mass-market merchant and upend the already struggling USA retail industry.

Such changes may be a long way off, and Amazon has plenty of time to change its strategy, with the $13.7 billion deal not expected to close until the second half of the year.

"They're doing an wonderful job and we want that to continue", Amazon founder and CEO Jeff Bezos said.

"We want to assure you that Amazon shares Whole Foods Market's deep commitment to quality and customer service".

The deal would give Amazon control of 430-plus U.S. Whole Foods stores, almost all of which are in neighborhoods more affluent and younger than America as a whole, noted David Portalatin, the NPD Group's vice president of food industry analysis.

Amazon runs their own online grocery - Amazon Fresh - which started a decade ago in Seattle, Washington.

The more than 460 Whole Foods stores in the United States, Canada and the UK could also be turned into distribution hubs - not just for delivering groceries, but also as pick-up centres for online orders.

Whole Foods had fiscal 2016 sales of about $16 billion.

The online giant is buying the high-end grocer for $US42 a share, valuing the company at $US13.7 billion.

Pressure from activist investors got so high that Whole Foods CEO John Mackey told Texas Monthly magazine recently that "they're greedy bastards, and they're putting a bunch of propaganda out there, trying to destroy my reputation and the reputation of Whole Foods, because it's in their self-interest to do so".

That's in part because most shoppers prefer buying groceries, and especially fresh foods, in person.

At least one customer was concerned that an Amazon purchase would further distance Whole Foods from its roots as a purveyor of premium, organic and specialty foods. Target tumbled by 10 percent and Walmart was down by 6 percent.

It's also been testing automation technology at a Seattle convenience store that's now open only to Amazon employees. 'Those grocers will respond by cutting prices and that will cut profits for the distributors'.

Dylan: But there's definitely a lot more going on here than the fact that Whole Foods has 30 locations in MA. Amazon, on the other hand, saw an increase in its share value of around 2.4 percent with around $11 billion adding to its market capitalization.

"Whole Foods was losing market share to Kroger", said Brittain Ladd, who until earlier this year was a senior manager working to roll out AmazonFresh globally.

Here's a look at some of the big moves in the stock market following news of Amazon's acquisition of Whole Foods Market.

With the purchase of upscale grocery chain, Amazon which had it's major presence online will now have access to the physical markets too. The acquisition price implies a trailing 12-month price-to-earnings multiple for Whole Foods of 31 times, versus a 14.4 average for the S&P 500 Food Retail index.

That could help Amazon both cut shipping costs and draw more customers into Whole Foods locations. And it should be able to bring cost-cutting technologies, such as robots to move inventory around, while the company gets a better picture of customers by marrying data from Amazon and Whole Foods' loyalty programs.

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