Tuesday, 17 October, 2017

Amazon Inc Continues to Expand, Buys Whole Foods Market

A customer pushes a cart while shopping on the opening day of the 365 by Whole Foods Market store in the Silver Lake neighborhood of Los Angeles Wall St. dips as Amazon-Whole Foods deal slams retailers
Steve Phelps | 18 June, 2017, 00:49

Yes. The world's largest e-commerce company is now a very substantial brick-and-mortar food retailer.

Amazon has recently begun experimenting with bookstores and a small grocery, but this is by far its most ambitious move into physical retail.

The e-commerce titan is going whole hog for USA groceries with the $13.7 billion acquisition of upscale chain Whole Foods Market. When Amazon chose to approach Whole Foods last month, it picked Goldman for advice. Amazon, though its Prime benefits program has created strong loyalty, has a long way to go before it's a default choice in groceries as it often is for books and electronics.

The deal has the possibility to be "transformative", Moody's lead retail analyst Charlie O'Shea said in a note, "not just for food retail, but for retail in general". It also had been facing increased pressure from rivals, including European grocery chain Lidl, which is planning to enter the East Coast market, along with Aldi and Trader Joe's. The agreement includes assumption of Whole Foods' net debt.

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. Whole Foods already has a lot of in-store dining and lots of prepared foods.

One reason Kroger is hurting stems from the improvements Walmart has made in its grocery business, which accounts for more than half of its annual sales.

Companies in the food business, he adds, are also under attack from another recent entry into the US grocery pace, German grocer Lidl.

They have indicated that they do not plan to automate cashier jobs in the stores, .

Fresh foods are the final frontier for Amazon.

"The first thing that Amazon is going to do is get the Whole Foods pricing right", said Howard Davidowitz, the head of the retail consulting firm and investment bank Davidowitz & Associates.

"The conventional grocery store should feel threatened and incapable of responding", Pachter said. Certainly, it would appear to Cantillon that Bezos sees the future as slightly more nuanced than the vista of couch-bound online shoppers ordering everything from fast food to films online.

The shift to younger shoppers over time is expected to play a part in the transformation of online grocery shopping, he said.

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. It has just two of its own Amazon Fresh Pickup locations in Seattle.

In 2016 alone, Whole Foods had sales of $16 billion across its more than 460 stores in the United States, Canada and the United Kingdom. It also had announced a board shake-up and cost-cutting plan amid pressure from activist investor Jana Partners. The company tried to compete with several offerings: Amazon Fresh, available in 20 cities; Amazon Pantry, which lets consumers buy crackers, paper towels, and other non perishables; and Prime Now, which delivers groceries from local stores in some cities.

The Whole Foods purchase "doesn't necessarily mean Amazon will shift it into an online grocer", she said.

Amazon.com just bought its way to the top of the food chain. The store uses sensors to track items as shoppers put them into baskets or return them to the shelf.

In exchange for this strategic deviation, Amazon gets access to a slew of wealthy customers and information about their food-buying habits. The stores could teach cooking skills, hold classes and educate about food. And the key measure that retailers look at to gauge their health, revenue at stores open more than a year, has fallen for seven quarters in a row. It was widely reported that Jana was pressing Whole Foods to consider a sale.

And this headline from Business Insider helps explain it: Amazon is acquiring Whole Foods - and Walmart, Target, and Kroger should be terrified.


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