Amazon swallows Whole Foods, and supermarkets blanch

Amazon swallows Whole Foods, and supermarkets blanch

The deal represents a dramatic turn in strategy for Amazon, which has offered food delivery through its Fresh service for a decade but has not made a major dent in the $700 billion grocery market.

Initially, an online bookstore as it was launched in 1994, Amazon stands now as the most valuable retailer in the United States by market capitalization, with more than 341,000 employees worldwide.

Shares of grocer Kroger Co swooned 9.2 percent, while Wal-Mart Stores Inc fell 4.7 percent, signaling fears that Amazon could broaden Whole Foods' product mix and cut prices. Costco shares closed down 7.2 percent. Amazon invested in refrigerated distribution centers to hold items. (NASDAQ: WFM) in a transaction valued at $13.7 billion. Shares of several supermarkets, food producers, and shopping malls plummeted on Friday after the acquisition news emerged on the surface. Whole Foods Market, which has more than 420 stores in more than 40 states in the USA, soared more than 29.1 percent to $42.68.

Amazon has recently begun experimenting with bookstores and a small grocery, but this is by far its most ambitious move into physical retail. According to Gene Munster, a veteran tech analyst who's now a partner at venture capital firm Loup Ventures, Amazon likely won't earn a profit from the organic grocer for a couple of years. Amazon tends toward competitive pricing, while some of Whole Foods' products are so expensive the company has been dubbed "Whole Wallet". It could have built up its groceries business without acquisitions, said Neil Saunders, managing director of GlobalData Retail, but that would have been costly and time-consuming. Younger customers are already shopping extensively online and have come to expect digital retail sales, he said. Backed by its express delivery network, it has entered the US grocery market with limited success through its online platform in recent years under a brand name known as AmazonFresh. Moreover, the analyst believes that the announcement has far-reaching consequences for all food retailers as well as the retail space as a whole.

Amazon also has been testing automation technology at a Seattle convenience store that's now open only to Amazon employees.

"Fresh foods are the final frontier for Amazon", Portalatin said.

Amazon "will likely utilize Whole Foods' existing infrastructure to shake up the brick-and-mortar market", she said, "while taking advantage of its supply chain to make the online side of the business more cost-effective". "If shoppers are going to allow a company, a retailer, to pick their meat, their products and their seafood, Whole Foods is probably at the top of the list of retailers with the best reputation across the country". Hetu said Amazon could make pertinent offers to attract shoppers of one but not the other or get shoppers of both to buy more. But now, a combined Amazon-Whole Foods will put a tighter squeeze on the two big chains. Earlier this year, Target named former Kroger executive Jeff Burt to overhaul its struggling food retail business.

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