Financial commentators, retail analysts and industry insiders have been reacting to last Friday’s bombshell announcement that online retail giant Amazon is set to acquire Whole Foods Market for US$13.7 billion.
Sending shockwaves
One thing was immediately clear, said leading US business media outlet Bloomberg – the Amazon/Whole Foods deal would send “shockwaves across both online and bricks and mortar industries – witness the plunging stock of Wal-Mart (down 7.1%) and Kroger (down 17%) – as investors worried that woes will mount in the increasingly cutthroat industry”.
For the New York Times, the Amazon, the deal “marks an ambitious push into the mammoth grocery business, an industry that in the United States accounts for around $700 to $800 billion in annual sales. Amazon is also amplifying the competition with Walmart, which has been struggling to play catch-up to the online juggernaut.”
Lure of bricks and mortar
There’s general agreement among retail pundits that Amazon’s acquisition of a major bricks and mortar retailer operator had been on the cards for some time. – even if there were doubts along the way. Mark Mahaney, analyst at RBC Capital Markets, told the Financial Times: “Amazon has changed its mind on bricks-and-mortar. They have been changing their mind on it for the last four to five years, they have been going through an evolution.”
“This is the clearest indication that Amazon intends to be a serious player in grocery retail – and is a wake-up call for grocery retailers”
Harsha Wickremasinghe, Associate at London-based M&A specialist Livingstone commented: “This is the clearest indication that Amazon intends to be a serious player in grocery retail – and is a wake-up call for grocery retailers in the North America and the UK. It also highlights that Amazon clearly believes that in order to achieve long-term success in the grocery category, it is essential to have a bricks-and-mortar presence.”
It’s all about volume
Neil Saunders, managing director at GlobalData Retail, told the FT that if Amazon “wants to be serious in food it has to have volume, Online food delivery doesn’t make money even for Amazon and this deal gives them the economies of scale. The only way they could do it was to buy someone.”
Whole Foods, Amazon’s (organically sourced) guinea pig?
In the New York Times, Farhad Manjoo reminds readers that Amazon Jeff Bezos is a habitual experimenter. “So the best way to think of this deal is to look at Whole Foods as a kind of guinea pig for Amazon — a pricey, organically sourced one, perhaps, but a guinea pig all the same.”
“the best way to think of this deal is to look at Whole Foods as a kind of guinea pig for Amazon — a pricey, organically sourced one, perhaps, but a guinea pig all the same”
A lifeline for a struggling retail model?
Whole Foods Market has been struggling in recent years as America’s supermarket groups have aggressively sought their share of the natural and organic dollar spend. The New York Times says the deal “represents a chance to fend off pressure from activist investors frustrated by a sluggish stock price as it has faced fierce competition from Costco, Safeway and Walmart”.
Category dilution threat?
Natural and organic brands will worry that Amazon sees Whole Foods’ retail estate as a glorified click and collect opportunity, and that it will have no qualms about diluting Whole Foods’ traditional organic offer. As former AmazonFresh manager, Brittain Ladd, told Reuters: “There’s no value in Amazon keeping the status quo at Whole Foods. Whole Foods was losing market share to Kroger. It’s pharmacy. It’s having the ability to put stores that are similar to Apple stores inside Whole Foods.”
“There’s no value in Amazon keeping the status quo at Whole Foods. It’s pharmacy. It’s having the ability to put stores that are similar to Apple stores inside Whole Foods”
The new retail paradigm? …. maybe not
There is much talk of robots and drone deliveries coming Whole Foods’ way, and of the Amazon/Whole Foods deal signalling a new retail paradigm. But a Guardian Business Leader suggests that the reality may turn out to be a little less Brave New World than some would want us to think: “Amazon, the online revolutionary, feels the need to own shops to be big in groceries. It is the reason why supermarkets should not conclude that their business models are broken. Amazon is proposing an approach that looks like their own: a mix of online and physical stores.”
11 hours ago