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Amazon to acquire Whole Foods

17 Juin 2017

As grocery shoppers work to digest Amazon's massive acquisition of Whole Foods for $13.7 billion, the digital storefront recently scored a victory that aims to reinforce the company's growing investments in brick-and-mortar retail.

In Florida, grocery delivery programs have been gaining in popularity.

Not everybody was favorably impressed by the Whole Foods deal.

Whole Foods shares jumped 27pc to $41.99 as of 10am yesterday in NY, bringing them close to the transaction price.

But from another perspective, and one transcending retail store presence, are other considerations, like brand affinity and buyer demographics.

Each geographic division of Whole Foods market has its own office and regional president and oversees its own store network, meaning it's hard for small business owners to efficiently distribute their products to Whole Foods Market stores across multiple regions.

INSKEEP: OK, let me ask about the other side of this deal.

NOGUCHI: Well, the product is perishable, a lot of consumers want to check out the produce. In 2016 a fifth of American clothes and accessories were bought online, according to Cowen, a financial-services firm.

Amazon has tested grocery stores of its own and also offers Prime Fresh, a $299-a-year grocery delivery service. Amazon might be able to sell affordable groceries as it makes its money from its online marketplace.

PCC has also partnered with its competitor, offering delivery through Amazon Prime Now since April past year. Bananas bruise, meat rots, ice cream melts and a gallon of milk, if packed at the top of a grocery bag, will crush the muffins placed below. However, Whole Foods does not have access to Instacart's financial numbers and analytics. So buying the Whole Foods chain is going to give Amazon 450 physical grocery locations which could then serve as local warehousing operations, essentially. The company is in the process of buying Whole Foods for $13.7 billion, for purposes we can only assume include world domination.

Under its deal with Amazon, Whole Foods, founded in 1980, would continue to operate under its existing brand. Customers are assigned a personal shopper who scours the aisles, purchases and delivers items from retailers like Whole Foods.

Since its founding 23 years ago, Amazon.com has upended the business of selling books, music and just about everything else we consume - except food. Whole Foods's store brand could in future be sold on Amazon.com.

Earlier this week, the company announced that it plans to build a new facility in Colorado that will employ more than 1,500 full-time workers. Amazon shares gained 3.2pc to $995.

Amazon's annual sales revenues tell the story differently, but convincingly enough.

Many investors had expected Amazon to get into the grocery business. Previous year it paid $3bn for Jet.com, a challenger to Amazon. The online retailer is all about giving customers the most for the least amount spent, while the grocer is the pricey purview of the alt-organic lifestyle elite. Surely, that made the grocer a more appealing takeover target. Titled "Physical Store Online Shopping Control", Amazon's patent describes a system that can identify a customer's Internet traffic and sense when the smartphone user is trying to access a competitor's website. On June 15th Kroger, the country's second-biggest chain, reported declining like-for-like sales.

But GlobalData Retail managing director Neil Saunders says investing in such initiatives can be costly and may be unattractive for grocers as they face increasing competition from discount retailers. "If Amazon is going to buy something, why not a margin-booster like another cloud business that will actually bring profits?" "We believe it presents an incredible opportunity to take Whole Foods Market's mission and goal to new levels and will create significant value for our stakeholders - including you, our most loyal customers". It rescues the organic-food chain from its activist investors and gives it more buying power. The company accounts for about half of all new spending online in America.

Amazon is a unique threat to many retailers because it does not mind losing money for long stretches.

However regulators are unlikely to intervene.

"There are going to be many important changes that occur in the consumer experience with this deal, and one of them is to transform the pricing structure". That's 27% higher than Whole Foods' Thursday closing stock price of $33.06. Barring that, the deal will likely go through, Amazon expects, within the next six months.

Amazon to acquire Whole Foods