Logistics

Amazon bids to buy US grocery chain – Whole Foods

03:43 SGT July 13, 2017
Amazon
This startling move not only ruffled the food industry, but also both the tech and retail industries

By Mili Semlani

It will be by far Amazon’s largest acquisition, if the retailer’s bid to buy US-based Whole Foods for a little under US$14 billion is successful. Giving nearly every other grocery store in the US a fight of its life, Jeff Bezos’ company offered US$42 in cash for each Whole Foods market share. Whole Foods — the biggest name among young, urban professionals for groceries — was not in very good shape. It has a large fleet of physical stores across the US and with plummeting stock prices, Amazon’s offer seemed irresistible.

This mighty announcement shook three different markets: grocery stores, online shopping and food delivery. By acquiring Whole Foods, Amazon will have access to one-third of high income American households.

GROCER GRIEVANCES
Amazon locked horns with the world’s largest bricks-and-mortar retailer, Walmart, since it got into business. And with this, Amazon will have a mainstream grocery brand with more than 430 physical stores and a well oiled supply chain under its belly, in addition to a stake in Instacart — a grocery-delivery startup. So, is Amazon going to do to groceries what it did to bookstores?

Amazon’s claim to fame was not just convenient shopping but also slashed costs. And if they can remodel Whole Foods’ premium food reputation with Amazon’s price-competitive image, the many grocery chains in the US will have a reason to worry.

Just after the announcement, the stocks of traditional grocery stores like Kroger Walmart and Target went down. And the damage did not just stop there. Food companies like Hershey and Campbell Soup also slumped because of investor concerns that Amazon will do for their products what it does for everything else — cut prices ruthlessly. Wall Street is betting Amazon could be as disruptive to the US$800-billion grocery industry in the US as it has already proved to be for bricks-and-mortar retail businesses. Grocery is already a low-margin industry and with Amazon’s online strength, the already struggling industry will be forced to cut costs and spend on e-commerce.

Moreover, Whole Foods does not sell certain name-brand products such as Frosted Flakes or Campbell Soup from major food manufacturers. And with Amazon backing it now, these brands are anticipating slow sales in the future.

QUANTITATIVE START
Whole Foods has more than 460 stores in the US, Britain and Canada, with a lot of brand power. Its US stores are within just three miles of 75 million Americans. And going by census data, this acquisition can buy Amazon access to one-third of high-income American households.

With prime-location distribution points all over the US, Amazon is aiming to become a physical retail powerhouse, and that too with competitive pricing and a seamless online shopping experience. Not only can Amazon distribute its private food labels via Whole Foods and sell Whole Foods’ through its website but it can also use the many stores for warehousing and inventory management (that Whole Foods has already practised for years).

NEW SHOPPING CART
Whole Foods rose to prominence and flourished when Americans sought access to organic foods and health products. But over time, competitors such as Kroger, Trader Joe’s, Meijer, Albertsons, and even foreign brands such as Aldi and Lidl, caught up, offering cheaper prices for many of the same goods.

In the grocery realm, Amazon had opened two “click and collect” stores
in Seattle where customers can order online and then drive through to have their groceries loaded directly into their cars at a predetermined time. It also has a concept Amazon Go close to its headquarters where
customers do not have to check out at all; instead, sensors and cameras automatically charge consumers for items they pick up and carry out.

With the acquisition, Amazon no longer needs to build physical stores and it is only a matter of time until we witness a revolution in the grocery shopping experience.

A research by the NPD Group found that even among people who buy groceries online, 74% of their food dollars are spent in bricks-and mortar stores, and now Amazon is far closer to the American consumer than ever.