Published: Tue, June 20, 2017
Markets | By Lucia Cruz

Grocers facing a united Amazon-Whole Foods must adapt

Amazon has officially purchased upscale brick-and-mortar grocery chain Whole Foods for $13.7 billion.

He said today the impact or benefit to the candies and snacks category from Amazon's Whole Foods acquisition will mainly depend "whether Amazon will look to keep the two businesses separate, or if they look to integrate the models in some way".

We don't know the answer to these questions just yet, but any real information about interest from another firm would be the first sign of trouble for Jeff Bezos and his acquisition team.

Jefferies' Brian Fitzgerald provides some more in-depth analysis of the strategy behind the deal: We believe the WFM (Hold) acquisition would give a boost to AMZN's efforts with Fresh which was launched 10 years ago and operates in 20 metro areas in the United States and overseas.

Founded in Austin in 1978, Whole Foods has 465 stores worldwide and 87,000 employees.

The deal also solidifies the rise of digital and technology in the role of grocery shopping.

Mackey has been facing investors' ire because of his strategies that were thought to have resulted in Whole Foods' poor performance.

The company also has been testing sensors at a convenience store in Seattle to track items as shoppers put them into baskets or return them to the shelf. Plus, 79% of those surveyed have a left a store and decided against purchasing an item because the checkout line was too long. In fact, the deal accounts for 57.7% of the retail subsector's total deal value in the year to date.

Amazon is sinking its teeth deeper on the U.S. market, penetrating the grocery industry scene with its innovative ideas and tech advancement.

Whole Foods stores- which have been flailing recently- will continue operating "under the Whole Foods Market brand" with the same CEO John Mackey.

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What does the deal ultimately mean for Amazon?

Buying Whole Foods gives Amazon 465 premier locations immediately.

Over the last one year, Amazon's share price has grown roughly 38%, thanks to its solid loyalty program in Prime, Fulfillment By Amazon, Amazon Web Services (AWS) and initiatives around Internet of Things (IoT).

The move gives Amazon access to Whole Foods' 460 stores in the US, Canada, and Britain - most of which are well-located in desireable areas. However, being under Amazon's umbrella will ensure that it doesn't lose out on sales.

What will it take for Whole Foods to settle?

Regarding the second one of those two scenarios, Short explained that there was little risk that a tie-up between Home Foods and might run afoul of the regulator.

"In terms of building a proper physical store, Whole Foods is a great partner to establish an emotion connection with its consumers, which online retailers lack at the moment", she said. Amazon may open up Whole Foods proposition to a much larger audience, as only 11% of Amazon shoppers shop Whole Foods today. Yet sometimes the goods cost less than what Amazon pays for shipping, and that's a large cost the retailer would like to reduce.

Goldman Sachs' Fassler lowered his Costco rating from "conviction buy" to neutral on Friday, slashing his price target from $197 to $176.

Food delivery has failed before, so why does Amazon think it might work now? Walmart/ will be the wild card to compete directly against Amazon/Whole Foods.

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