Grocers facing a united Amazon-Whole Foods must adapt

Amazon.com, Inc. (NASDAQ:AMZN) announced on June 16 a surprise acquisition of Whole Foods Market, Inc.(NASDAQ:WFM) for $13.7 billion (all-cash, $42/share).

Explaining the rationale, Deutsche Bank said Amazon's move would notably increase touch points with customers, as food & beverage accounted for the biggest share of consumer spending in 2016.

Notably, shares of dozens of supermarkets, food producers, shopping malls and payment processors collectively lost about $35 billion in the USA market on Friday in response to the news. The upscale grocery chain recently replaced much of its board, added a new CFO and developed plans to slash costs and tweak operations.

Now with Amazon jumping into the grocery business with a more than 400-location retailer, the price slashing - and competition from private labels - can only intensify. "We can only imagine the technological innovation that Amazon will bring to the purchasing experience for the consumer".

Also, the parties have revealed that Whole Foods Market CEO John Mackey will continue in his role while the present headquarters of the supermarket company in Austin, Texas will be retained.

The Apple Watch app for Whole Foods included shopping list functionality (as pictured above), allowing iOS app users to create shopping lists that sync automatically to the Watch for easy viewing while walking around the store shopping.

Amazon is expected to lower Whole Foods' notoriously high prices, enabling it to pursue Wal-Mart's customers.


Completion of the transaction is subject to approval by Whole Foods Market's shareholders, regulatory approvals and other customary closing conditions.

We already know from Amazon's announcement last week that Whole Foods stores will continue to operate under their own brand, and will keep sourcing products from "trusted vendors and partners around the world".

Elise Bauer, a food blogger in Sacramento, California, lives about five minutes from a Whole Foods store and shops there several times a week.

But now Mackey, 63, one of the most successful traditional retailers of the past generation, is going into business with Bezos, 53, the man most responsible for turning traditional retail on its head. Amazon's move aims at the heart of the Bentonville, Arkansas-based retail giant's business - groceries, which account for 56 percent of Wal-Mart's $486 billion in revenue for the year ending January 31. Amazon stock was still set to open higher on Monday morning despite the risk that it will end up paying more for Whole Foods than first reported.

She conceded it might be tough to outbid Amazon, but it could still be worth it to drive up the price and make Amazon pay more. This seems ironic for the online retail giant considering that customers have been using its online retail platform for the longest time to carry out price comparison while at rival brick and mortar stores. "Kroger and Wal-Mart will be impacted as their customers will defect to Amazon".

"The retail sector is used to change, but every so often an event occurs that shakes the industry to its core", said Neil Saunders, managing director of research firm GlobalData Retail.

"Amazon already has an affinity towards supplying foods with strong provenance, organic benefits, or very specific health needs", he added.

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