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19 June 2017, 02:24 | Lucia Cruz
Shares of many grocers and retailers slumped Friday after Amazon announced a $14 billion deal to buy high-end grocery chain Whole Foods Market.
This deal points towards Amazon's big focus on the grocery business, especially in the US.
"It's amusing. I was just ordering something on Amazon", said Nick Yezierski, a hotel manager who was eating breakfast outside the Whole Foods flagship store in Austin, Texas.
Whole Foods, which has built a following that buys its organic meats, produce and other items, is in a strong position to persuade shoppers to place orders online and let store employees do customers' marketing for them, he said. Walmart, which has the largest share of the USA food market, has been working on lowering prices, while Target has been struggling to turn around its grocery business. It announced last Friday that it had agreed to buy online clothing company Bonobos for US$310 million.
Amazon, meanwhile, has been expanding its reach in goods, services, and entertainment.
But it was Whole Foods that fell behind as shoppers found alternatives to the organic and natural foods it helped popularize since its founding in 1978.
The news might come as a shock to some, but Whole Foods investor Jana Partners suggested the acquisition earlier this year. Whole Foods was, however, costlier in 1992 as compared to today (keep the times in check) and it has been reducing the prices to keep the sales in check.
"Dominant players like Walmart, Kroger, Costco and Target now have to look over their shoulders at the Amazon train coming down the tracks", said Moody's lead retail analyst Charlie O'Shea. This is being viewed as a power move by the e-commerce giant, who is looking to compete against the leading retail chain giant, Wal-Mart.
Amazon declined comment on competition with Walmart but spokesman Drew Herdener said in a statement the company has no plans to cut jobs or use technology in development at its Seattle Amazon Go store to automate jobs of cashiers.
But shoppers could start to grow more comfortable buying, and Amazon sees the grocery business as a hot market because shoppers buy weekly or even more often for items they run out of.
Brittain Ladd, a former senior manager at Amazon who worked on its brick-and-mortar strategy, said Amazon will use Whole Foods to test concepts for the grocery store of the future.
"Amazon will reduce prices and change the assortment of products carried in Whole Foods stores to attract a larger customer base", said Ladd.
Whole Foods has struggled for quite some time with increasing same-store sales and boosting short-term profits. In an email to customers, the company said it planned to maintain the same standards under Amazon, including bans on artificial flavors and colors. The top 10 grocery retailers plus Amazon control less than half of the market, Blackledge says, and a patchwork of several hundred grocery chains, convenience stores, dollars stores as well as mom and pop stores make up the remainder.
A Whole Food Market is shown in Indianapolis, Friday, June 16, 2017.
Amazon, which is sitting on US$21.5 billion in cash, has recently begun experimenting with bookstores and a small grocery but this is by far its most ambitious move into physical retail.
Amazon could also get a better picture of customers by marrying data from Amazon and Whole Foods' loyalty programs. And shoppers may be skittish about having Amazon take over one more element of their shopping experience.
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