By Canadian Grocer staff with files from The Canadian Press | June 16, 2017
Amazon is buying Whole Foods in a deal valued at US$13.7 billion, including debt.
Whole Foods co-founder and CEO John Mackey will continue to run the business, and the organic grocery store chain will continue to operate under the Whole Foods banner.The deal is targeted to close in the second half of the year, pending shareholder and regulatory approval.
Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy, said Jeff Bezos, Amazon founder and CEO, in a press release announcing the acquisition. Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades theyre doing an amazing job and we want that to continue.
Whole Foods has been under pressure from investor Jana Partners, whichhad been pushingfor a shake-up of the senior management, among other changes.
Whole Foods has seen sales at established stores fall for seven straight quarters and pressure on the chain will likely intensify with European grocery chain Lidl entering the U.S. market this summer.
In its efforts to turn things around, the company said it would cut $300 million in costs by its fiscal 2020 and pumped the brakes on an aggressive expansion plan. At one time the grocery chain said it saw the potential for 1,200 locations, up from 470 in the United States, Canada and the United Kingdom.
Amazon, meanwhile, has been creeping into the brick-and-mortar space with bookstores and small grocery formats. Late last year it started testing Amazon Go, a checkout-free grocery store in Seattlethatoffers ready-to-eat meals, staples like bread and milk and meal-making kits.In May it opened two curbside grocery kiosks in Seattle to members of its Prime loyalty program.
The deal with Whole Foods “significantly accelerates” Amazon’s move into the traditional retail space, saidIGD program director Stewart Samuel.
“Having a physical presence, closer to the customer, provides the potential to reduce delivery lead times and last mile delivery costs,” said Samuel. “There will also be a strong cross-over between Whole Foods Market’s core customer group and Amazon’s Prime members, which are typically younger and more affluent.”
Customers have been slow to adopt shopping for groceries online, particularly meat and produce, because they want to ensure what they’re purchasing online is fresh. Customers would be more likely to give it a try if they knew their online purchase was the same quality as what they were picking up in store.
Wedbush Securities analyst Michael Pachter told The American Press that even if Amazon gets 20 million members of its Prime loyalty program to pay $15 a month extra for AmazonFresh grocery-delivery service, that’s 20 million not going to traditional supermarkets. He added that these are likely the higher-income households who tend to buy more expensive brands and cuts of meat.
“The conventional grocery store should feel threatened and incapable of responding,” Pachter said.
News of the acquisition sent stocks of grocery store operators and other companies that compete with Whole Foods plunging Friday morning. Investors are concerned Amazon will disrupt the grocery industry the same way it has department stores and other brick-and-mortar operations.
Walmart stock dropped $4.98 to $73.91, while Kroger stock fell $3.42 to $21.14.
Image courtesy of canadiangrocer.com