Published: Tue, June 20, 2017
Business | By Jorge Reeves

Amazon Buys Whole Foods

Amazon Buys Whole Foods

Amazon is buying Whole Foods in a deal valued at about $13.7 billion, a stunning move into brick-and-mortar retail that sets the stage for more radical store experimentation and intensified competition with grocery rivals.

Amazon announced Friday they would buy Whole Foods Markets; a move that sent Kroger shares tumbling.

Set up in 1978, Whole Foods, whose stores now span more than 430 locations, has found it hard to attract more mainstream consumers as Walmart and other large chains have stepped up their sales of natural and organic products. Amazon would be dealing with perishable food, non-perishables, and consumer products. Whole Foods is courting the discount shopper with its lower cost brand 365.

The Amazon-Whole Foods combination could put even more pressure on those chains and other big grocery sellers. While Amazon has been building more and more delivery hubs, the Whole Foods deal gives it 456 stores that it can instantly fit into that network, said Josh Olson, analyst with Edward Jones. Target tumbled by 10 percent and Walmart was down by 6 percent.

CHRISTY DAVIS: Nice atmosphere when you're shopping.

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Amazon is buying Whole Foods.

John Meyer, a portfolio and security analyst, said a "price war" between brick and mortar stores is already occurring. "A lot of people will love that", said Whole Foods customer Brad Anderson.

Walmart has been trying to address some of those online threats, pushing harder into online to build on its strength in its stores and groceries. Amazon, on the other hand, saw an increase in its share value of around 2.4 percent with around $11 billion adding to its market capitalization.

The deal would give Amazon control of 430-plus U.S. Whole Foods stores, almost all of which are in neighborhoods more affluent and younger than America as a whole, noted David Portalatin, the NPD Group's vice president of food industry analysis.

In Whole Foods, Amazon is acquiring a company that has recently come under pressure from investors for its lagging performance.

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"I think that this takes all of the pressure off Whole Foods and gives Whole Foods the opportunity to revitalize that business and of course it stems the criticism from all of these activist investors", said Neil Saunders, managing director of GlobalData Retail in NY.

"I don't know if they do deliveries", she said, referring to Whole Foods. Customers are assigned a personal shopper who scours the aisles, purchases and delivers items from retailers like Whole Foods.

And Amazon could turn to dealmaking again.

Amazon also has been testing automation technology at a Seattle convenience store that's now open only to Amazon employees.

The market reverberations of the announced deal traveled beyond the retail industry - shares of food companies like Hershey and Campbell Soup slid, too. The stock is up more than 31% so far this year.

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