Published: Tue, June 20, 2017
Economy | By Annette Adams

Amazon is buying Whole Foods in $13.7B deal

Amazon is buying Whole Foods in $13.7B deal

What do you think it will be like to walk into a Whole Foods 10 years from now?

Amazon will gain a footprint of 456 supermarket stores in North America and Britain with the acquisition of Whole Foods, boosting its delivery capacity and allowing it to compete directly with USA chains such as Kroger Co and Albertsons LLC.

It is estimated that Americans spend about 6 percent of their income on food and it is a regular expense. Kroger sank 11.48 percent, while Costco dropped 5.64 percent.

"Whole Foods' online grocery channel is operated by Instacart, which will likely not be the case for long if the acquisition is approved". Consumers are buying more from outside of traditional supermarkets.

According to the release, Whole Foods will continue to operate under its own name and Mackey will stay on as CEO of the brand.

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 conventional grocery store should feel threatened and incapable of responding", Wedbush Securities analyst Michael Pachter said.

Amazon has turned malls upside down, but had left grocery stores unscathed.

The announcement of Amazon's largest acquisition yet sent stock prices for major grocery chains tanking Friday morning. 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. Whole Foods, whose fleet of stores now numbers more than 430 locations, has found it hard to attract more mainstream consumers as Walmart and other large chains have stepped up their sales of natural and organic products.

The deal comes a month after Whole Foods announced a board shake-up and cost-cutting plan amid falling sales and pressure from activist investor Jana Partners.

Expanding into the grocery market would not only bring profits to Amazon but a room for great expansion.

"The ramifications for all of retail are seismic - not just retailers that sell grocery, but for everyone", Chuck Grom of Gordon Haskett said. Just as Walmart is using Bonobos to get access to higher-end consumers and a more technologically savvy way of selling clothes, Amazon is using Whole Foods to get the expertise and physical presence it takes to sell fresh foods.

But is Amazon turning into a monopoly? "We are seeing very early signs here across AMZN Bookstores and the Amazon Go store in Seattle", Anmuth wrote in a note obtained by CNBC. Shoppers simply pick the items they want off the shelves and leave the store.

With this strategy, Amazon is planning to make the prices competitive and attract "more low- and middle-income shoppers" to its retail stores, which may still be located in posh localities.

Wal-Mart was just one of the many retailers whose stocks were impacted by the news that Amazon is acquiring Whole Foods.

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