Is this when Amazon becomes unbeatable?

Heather McIlvaine

19th Jun 2017

Amazon announced on Friday last week a merger agreement with Whole Foods Market, which will see the e-commerce giant acquire the US grocery chain for US$42 per share in an all-cash transaction valued at approximately US$13.7 billion, including Whole Foods Market’s net debt.

Whole Foods Market, which specialises in organic and natural food products, had sales of approximately US$16 billion last financial year.

Under the agreement, the grocery retailer will continue to operate over 460 stores in the US, Canada and UK under the Whole Foods Market brand and source from trusted vendors and partners around the world.

The company’s CEO John Mackey will remain at the helm and its headquarters will stay in Austin, Texas, Amazon said in a statement.

Writing about the acquisition in an article on LinkedIn, former Amazon employee Brittain Ladd said groceries offer a singular opportunity to win broader customer loyalty.

“Food is a must-have for all consumers. The retailer that does the best job of meeting the grocery/food needs of consumers to the point where customers become loyal to the retailers brand, will provide that same retailer with an opportunity to sell additional products,” Ladd wote.

“If consumers turn to Amazon for groceries, Amazon will [incentivise] those customers to turn to Amazon for apparel, shoes, home furnishings, furniture, media, electronics, books, and other products and services.

“Utilising AI and analytics, Amazon will learn the individual shopping habits and needs of their customers to the point where soon, Amazon will be able to anticipate what customers require, especially when it comes to groceries.

“When combined with a last-mile delivery and distribution network capable of delivering groceries to customers faster than they can travel to shop for groceries on their own, this is when Amazon becomes unbeatable.” [emphasis in original]

In order to make the Whole Foods acquisition work, Ladd suggested that Amazon will need to reduce prices at the retailer often referred to as “Whole Paycheck”, expand the assortment beyond just organic and natural food, leverage the company’s physical footprint to fulfil online orders of fresh food and implement Amazon Go technology in stores to increase margins.

Completion of the transaction is subject to approval by Whole Foods Market’s shareholders, regulatory approvals and other customary closing conditions.

The parties expect to close the transaction during the second half of 2017.