Amazon shakes up retail with $13.7bn Whole Foods deal

Whole Foods Market will still run physical stores under its own brand so the deal seems more about bringing Amazon's scale and expertise - especially in analytics - to bare.

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".

Several retailers have also been experimenting with ways to get people to buy groceries online, a habit that still hasn't fully taken off. Walmart, for instance, is trying to take advantage of its brick-and-mortar footprint through a service where people can buy groceries online and pick them up in the store. It announced Friday that it's buying online men's clothing retailer Bonobos for $310 million, following a string of online acquisitions including ModCloth and Moosejaw. Although Amazon's plans for Whole Foods is not clear, the acquisition has some wondering what will happen to the chain's existing stores.

The online giant past year declared its plans to open a physical grocery store called Amazon Go, a market without cashiers where consumers would be automatically charged based on the items they placed into their shopping bags.

Meal-kit companies: Whole Foods is also known to offer plenty of prepared food, so Amazon could be positioned to bank into this operation that allowed the likes of Blue Apron to propel itself to an IPO from being a humble startup business.

Some investors may be wondering if Amazon will disrupt grocery stores the way it upended the bookstore business.

"Dominant players like Walmart, Kroger, Costco, and Target now have to look over their shoulders at the Amazon train coming down the tracks", O'Shea said.

Amazon could try to cut operational costs at Whole Foods by using the same types of robots that already move inventory around at its e-commerce fulfillment centers. It now delivers fresh food on demand and opening test stores in Seattle. And Amazon has said it would like to bag 2% of the United Kingdom grocery sales.

Adrienne Anderson, at a Whole Foods in Savannah, Georgia, says she shops at Whole Foods nearly exclusively for meat and fresh produce "because of the quality and selection" and because fruits and vegetables are locally sourced. Cuatrecasas said Amazon's acquisition will set a precedent that other online companies are likely to follow.

Shares of Whole Foods shot up 29 percent and closed at $42.68 amid the news.

Kyle Bunch is with R/GA, a marketing, advertising and consulting firm right across from the Whole Foods headquarters. The Whole Foods purchase would let it expand to many more.

Both companies have a significant presence in Texas, making the Lone Star State a good place to test synergy, according to one marketing expert. "I think what they bought was a distribution network", Meyer said.

But Whole Foods customers are loyal, and some shoppers are excited about Amazon's purchase. It was recently granted a patent for technology that would block shoppers from comparing prices using their mobile devices while they are in stores. It implies a trailing 12-month price-to-earnings multiple for Whole Foods of 31 times, versus a 14.4 average for the S&P 500 Food Retail index. "It'll be interesting to see what [technological innovations] they choose to pull forward into a larger-scale brick-and-mortar environment - which pieces are most resonant for shoppers and consumers". Will it change the vibe at Whole Foods?

Vanessa Coleman

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