Published: Tue, June 20, 2017
Industry | By Dora Warner

Amazon shakes up grocery aisles with $13.7b Whole Foods deal

Amazon shakes up grocery aisles with $13.7b Whole Foods deal

Amazon is all about technology, and it's very likely that technology will be applied to the Whole Foods shopping experience.

Instacart is the on-demand delivery startup that promises grocery deliveries in as little as one hour. It implies a trailing 12-month price-to-earnings multiple for Whole Foods of 31 times, versus a 14.4 average for the S&P 500 Food Retail index.

Grocery stocks took a hit Friday morning on news of the pending merger agreement. Whole Foods itself had launched an offshoot chain named after its "365" private label brand in a nod to the popularity of no-frills chains. According to multiple reports, Whole Foods also invested in Instacart.

Its AmazonFresh delivery service, which has been slow to take off, accounting for 0.8% of all grocery purchases previous year.

The Amazon offer - which was 27% above where the upscale grocery chain's stock $33.06 closed on Thursday - means an instant profit. "But I don't really buy any home items on Amazon, not anything I put in my body".

"The first thing Amazon is going to do in this acquisition is to remove all those third party vendor services".

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For traditional grocers, like Kroger, this purchase makes the market even more price-competitive, she added.

The companies expect the deal to close by the end of 2017, subject to approval by Whole Foods Market's shareholders and regulators.

With a 9% stake, much of it accumulated relatively recently, Jana Partners was Whole Foods' second largest investor.

Revenue from Whole Foods accounts for less than 10% of Instacart's revenues, according to a different source familiar with the partnership.

Alina Gura of Newington who was visiting the Whole Foods store with her almost two-year-old daughter, said she appreciates the quality of the food, particularly its organic products. "That is the reality today at Amazon, and it will no doubt become the reality at Whole Foods".

Amazon's purchase of Whole Foods is a wakeup call for all grocery stores, says a Purdue University retail management expert."It is hard to overstate the impact that this is going to have in the grocery industry", says Richard Feinberg, professor of consumer science.

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Hrach Simonian, an investor in Instacart and general partner at Canaan Partners, stressed that Instacart has many other partners. Or someone who buys granola bars monthly from Whole Foods and paper towels every other week from Amazon might be offered the items in a single shipment, delivered to the door.

Instinet analyst Anthony DiClemente said in a note quoted by CNBC that Amazon is going to disrupt grocery business.

While that's good news for consumers, it could pose a challenge for Cincinnati-based Kroger as they try to attract new customers.

Bunch says from a marketing perspective, this is a big deal.

WalMart bought Jet, an ecommerce site trying to compete with Amazon, for $3.3 billion in 2016.

Whole Foods customer Bethany Capels, 34, of Mendenhall, Miss., loads her Whole Foods Market purchases in her vehicle in Jackson, Miss., Friday, June 16, 2017.

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