On June 15, Amazon announced that it was buying upscale grocery chain Whole Foods for $13.7 billion, or $42 per share.
The news shook up the markets, with Whole Foods’ stock rising almost 27 percent in Friday-morning trading. Whole Foods’ grocery rivals’ stock took a beating, though; Kroger was down more than 14 percent; Target lost more than 10 percent; Costco Wholesale Corp dropped almost 7 percent, and even Walmart felt the pain as its stock value dropped by 6 percent.
The move is seen by some as a tactic for Amzaon to expand its online grocery business. “The brand is a good compliment to Amazon and would allow them to more aggressively target fresh food delivery to the at-home market,” Darren Tristano, Chief Insights Officer at Technomic, told CNBC.
It seems odd that Amazon, a business that prides itself on providing the best quality at the lowest prices, would buy an upscale grocery store like Whole Foods, which is known for its premium pricing.
“Amazon is known for its competitive pricing, and if it had bought a chain like Shoprite or Acme, it would have made more sense,” said Juda Englemayer, crisis communication and reputation management expert at HeraldPR. “But Whole Foods is a store with generally very expensive real estate, and high prices, which is the opposite of what Amazon is all about, so it’ll be interesting to see how Amazon brings Whole Foods into the fold and adapts to a completely different model.”
Whole Foods CEO John Mackey sees the Amazon purchase as a way to protect the company from “activist investors” Jana Partners, who are “trying to destroy my reputation and the reputation of Whole Foods because it’s in their self-interest to do so.”
GlobalData Retail Managing Director Neil Saunders said the deal will give Whole Foods, which has been losing money for seven straight quarters, some financial breathing room. It will also make Whole Foods more competitive online and improve its supply chain logistics.
“There is an inherent logic in the move which, in our view, brings benefits to both businesses,” Saunders wrote.
“Amazon did not just buy Whole Foods grocery stores,” tweeted Wall Street Journal Financial Editor Dennis K. Berman. “It bought 431 upper-income, prime-location distribution nodes for everything it does.”
But what does this all mean for the future of retail grocery stores?
“This is an earthquake rattling through the grocery sector as well as the retail world,” said Bankrate.com Senior Economic Analyst Mark Hamrick. “We can only imagine the technological innovation that Amazon will bring to the purchasing experience for the consumer. Now, we can see in hindsight that its recent dithering around the brick-and-mortar experience, as an experiment, was only a rumbling of the seismic event in the offing.”
According to multiple reports, Whole Foods is going to keep its own identity and Mackey is expected to remain the grocery chain’s CEO.
Photo: Eric Broder Van Dyke / Shutterstock.com