Amazon-Whole Foods tie-up could speed grocery transformation

Amazon Displays Massive Buying Power Are Other Retailers

Amazon-Whole Foods tie-up could speed grocery transformation

With its $14 billion purchase of grocery chain Whole Foods Market Inc., the largest e-commerce company announced its intention to take on Wal-Mart in the brick-and-mortar world.

Amazon now has a grocery delivery service called Amazon Fresh, available in about 20 cities in the USA, but it struggled to make enough headway in becoming America's grocer.

"We thought Amazon was thrifty in its offer", said Charles Kantor, managing director at Neuberger Berman Investment Advisers LLC, which owns around 2.7 percent of Whole Foods shares and had pressured the company to take steps to improve its stock price.

While Mackey returned to brick-and-mortar retail in 2002, increasing sales almost six-fold, Amazon leapfrogged from books and music to produce and diapers, and built a subscription-delivery service called Prime. In its hometown, the online retailer also opened two drive-thru windows for grocery pickup of items ordered online. With the deal, Whole Foods' more than 460 stores become a test bed with which Amazon can learn how to compete with Wal-Mart's 4,700 stores with a large grocery offering that are also within 10 miles (16 km) of 90 percent of the USA population.

"Although industry revenue is only set to rise at an annualized rate of 0.8% over the five years to 2022, the transaction will allow the online retail giant to boost not only its grocery sales, but expand its brick-and-mortar presence", IBISWorld Industry Analyst Madeline Hurley said in a statement emailed to press.

Amazon is notorious among retailers for being willing to make little or no profit on some items with the hope that customers will then spend that saved money on higher-margin products. John Mackey will remain as CEO of Whole Foods Market and Whole Foods Market's headquarters will stay in Austin, Texas.

Is there a risk that increased automation will lead to job losses at Whole Foods, an issue facing the entire economy in coming years as more tasks are replaced by robots?

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Here's what the Amazon-Whole Foods mega-merger could mean for you.

"We also expect Amazon to install its technology at Whole Foods locations", Kantar Retail Senior Analyst Robin Sherk told FierceRetail. Now that it's owned by bargain-friendly Amazon, perhaps the prices at Whole Foods will get a reality check.

"Shifts in the retail environment, particularly in North America, may pose risks broadly for center-store processed food manufacturers, including General Mills". The Seattle-based company already offers discounted Amazon Prime memberships for people receiving government assistance and is part of a pilot program to deliver groceries to food-stamp recipients.

But now Mackey, 63, one of the most successful traditional retailers of the past generation, is going into business with Bezos, 53, the man most responsible for turning traditional retail on its head. Amazon and Whole Foods have the combined power to engage in low cost pricing - something mom and pop shops certainly can't do. So a few more acquisitions like this can change the retail landscape overnight and catch competitors off guard. Whole Foods could also become "Whole Foods by Amazon", or some other derivative.

In addition to Wal-Mart, Short specifically mentions Kroger and Target as potential counterbidders.

The co-founder of organic candy brand, Torie & Howard, Torie Burke said, "It's exciting that a progressive company like Amazon has moved into the natural and organic space". "This competitive pressure is due to proposition, geography and audience overlap with Whole Foods and Amazon".

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