Monday, 11 December, 2017

Amazon's deal to buy Whole Foods crushes stocks of supermarkets

Amazon to buy Whole Foods Market in deal valued at $13.7 billion Amazon deal for Whole Foods could bring retail experiments
Juana Turner | 20 June, 2017, 00:36

Online retail giant Amazon announced on Friday that it had reached a definitive agreement to acquire Whole Foods Market for $13.7 billion. 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.

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. Note, though, that one of its investors as well as partners is Whole Foods, either shaping Amazon to be a shareholder or Instacart as an acquisition target itself.

Charlie O'Shea, a Moody's lead retail analyst, told the Associated Press news agency that the deal could be "transformative, not just for food retail, but for retail in general".

Meanwhile, Whole Foods stock soared on the news, jumping almost 30 percent by mid-morning.

"This just gives them more options, and that's what consumers want". He added that these are likely the higher-income households who tend to buy more expensive brands and cuts of meat.

And because customers can buy foods and bulk items like toilet paper from a single retailer, discount retailers such as Costco, Target and Walmart should feel threatened, too.

With a 9% stake, much of it accumulated relatively recently, Jana Partners was Whole Foods' second largest investor. It also had been facing increased pressure from rivals, including European grocery chain Lidl, which is planning to enter the East Coast market, along with Aldi and Trader Joe's. Anderson advised Whole Foods alongside senior Evercore bankers Eduardo Mestre and William Hiltz. And the company has launched an offshoot chain named after its "365" private label brand, a nod to the popularity of no-frills chains that draw shoppers with low prices.

In 2016 alone, Whole Foods had sales of $16 billion across its more than 460 stores in the United States, Canada and the United Kingdom.

Amazon also has been testing automation technology at a Seattle convenience store that's now open only to Amazon employees. Then it uses sensors, computer vision, and deep-learning technology to track shoppers and what items they pick up. The shopper's Amazon account gets automatically charged.

Amazon could also get a better picture of customers by marrying data from Amazon and Whole Foods' loyalty programs. "That is the reality today at Amazon, and it will no doubt become the reality at Whole Foods", said UFCW President Marc Perrone in an email.

Whole Foods, a former Wall Street darling, hasn't posted double-digit-percentage sales gains since 2013, and most other chains have cribbed its halo of organic produce and customer-pleasing atmosphere in recent years. Its stock peaked in 2013 at $65.24. And the key measure that retailers look at to gauge their health, revenue at stores open more than a year, has fallen for seven quarters in a row.

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