Published: Sat, June 17, 2017
Industry | By Dora Warner

Amazon to buy Whole Foods in $13.7B deal

The deal will likely spur other companies to defend themselves with their own buying sprees, consolidating the fragmented industry of feeding Americans.

Whole Foods, founded in 1978, has struggled to differentiate itself as competitors also now offer a plethora of fresh and organic foods.

The deal is expected to provide Amazon a strong introduction into the $800 billion usa grocery market, where retail giant Walmart is increasingly feeling the pressure from Amazon's online retail business.

Grom noted that the Whole Foods deal "gives CEO Jeff Bezos a weapon to attract a customer he largely already caters to", alluding to the fact that more than 70% of households with incomes of over $112,000 have Amazon Prime subscriptions. Four of the five biggest losses in the S&P 500 index in early trading were retailers: Kroger, Target, Costco and Wal-Mart Stores.

In addition to owning Whole Foods, Amazon also owns the online retailer Zappos, publishing company Createspace, entertainment directory IMDB, video game streaming site Twitch, and numerous other brands.

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Instacart's grocery partners include Whole Foods, Food Lion, Publix, Target, and Costco. The deal will either absorb or eliminate Instacart, a startup that had emerged as a key player, and potentially sideline Walmart's early moves in the market.

"Amazon sees that industry changing significantly - and they see that people don't necessary go to the grocery store anymore".

"They are on offense and that is a good position to be in", Binder said, referring to Wal-Mart. Amazon might be able to sell affordable groceries as it makes its money from its cloud computing business and its huge online marketplace, and do to big grocery stores what it's done to sellers of goods like clothing and office supplies.

Up to now, though, Amazon's impact on the $500 billion grocery market has been negligible. Walmart, which has the largest share of the USA food market, has been working on lowering prices, while Target has been struggling to turn around its grocery business. "Those grocers will respond by cutting prices and that will cut profits for the distributors". Still, he argues the risk is worth taking and expects Wall Street to give Amazon a "pass" because it's the right thing for the long term.

"There's a large part of consumer spending that the AmazonFresh strategy hadn't tapped into", said Munster.

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Initially an online bookstore as it was launched in 1994, Amazon stands now as the most valuable retailer in the United States by market capitalization, with more than 341,000 employees worldwide. And it should be able to bring cost-cutting technologies, such as robots to move inventory around, while the company gets a better picture of customers by marrying data from Amazon and Whole Foods' loyalty programs. The company will apply that model to the Whole Foods system, said Cooper Smith, head of Amazon research at L2, a consulting company.

Amazon's takeout price of $42 a share undervalues Whole Foods' prospects and powerful brand, according to Rupesh Parikh, an analyst for Oppenheimer & Co.

Shoppers will continue to have access to Whole Foods through Instacart while the Amazon deal is going through the approval process, a source familiar with the partnerships told CNN Tech. Headquarters will also stay in Austin, Texas and Amazon says that sourcing trusted vendors for the products that Whole Foods carries will be a continued practice as well.

Whole Foods' stock was halted.

"Amazon is exploring product delivery with drones", Charlebois said.

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Supermarket chain Kroger, which plunged 19 percent Thursday after lowering its sales forecast, lost another $3.27, or 13.3 percent, to $21.29. The main feature of the purchase is a mainstream grocer with more than 430 physical stores. The figure fell again, by a worse-than-expected 0.2 percent, excluding gasoline, in the most recent quarter.

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