Amazon deal for Whole Foods could bring retail experiments

The buy marks Amazon's largest acquisition to-date. Kroger was down as much as 17%, Supervalu Inc. dropped as much as 22% and Weis Markets slumped as much as 9.6%.

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

Its own market value increased by $15 billion on the news.

Jana, which disclosed an 8.3 percent stake in Whole Foods in April and is the company's second biggest shareholder, stands to make roughly $300 million from the sale to Amazon.

Whole Foods, known for its organic and specialty food, will continue to operate stores under its brand and will continue to be led by cofounder and chief executive John Mackey, the two companies said.

"With the purchasing power that a partnership brings, and the innovation that Amazon has already introduced with its "checkout-free" grocery stores, prices for high-quality organic produce and prepared foods could decline significantly, putting pressure on a low-margin industry", noted Tom Caporaso, CEO of Clarus Commerce.

The aquisition means that Amazon will have further expanded their competition with major retailer-grocers such as Wal-Mart and Target, in addition to competing with traditional grocers and pharmacies.

Whole Foods, often derided as "Whole Paycheck" for its high prices, could see its reputation change if Amazon, a master at undercutting its brick-and-mortar rivals, passes any savings from automation to customers. The deal on the surface seems valuable for stakeholders in both companies.

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"This could revolutionize the food retail business", said Greg A. Wank, a partner with Anchin, an advisory and accounting firm that works with supermarkets. 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.

And because customers can buy foods and bulk items like toilet paper from a single retailer, discount retailers such as Costco, Target and Walmart should feel threatened, too.

Furthermore, most Whole Foods markets are in neighborhoods that are more affluent and younger than America as a whole. It's also been testing automation technology at a Seattle convenience store that's now open only to Amazon employees. It was widely reported that Jana was pressing Whole Foods to consider a sale.

Not anymore. In one fell swoop, Amazon founder Jeff Bezos has bought his way into the supermarket business with the $13.7 billion acquisition of Whole Foods.

The deal for Whole Foods, however, isn't without risks for Amazon.

Amazon and Whole Foods take diametrically opposite approaches to pricing.

"Amazon could bring technology to all Whole Foods locations, or it could absorb Whole Foods into AmazonFresh". Walmart, which has the largest share of the US food market, has been working on lowering prices, while Target has been struggling to turn around its grocery business.

  • Rogelio Lindsey