Amazon is buying Whole Foods

No stories yet. Just found this: Amazon is buying Whole Foods in a deal valued at $13.7 billion

This is going to be big. Amazon has wanted to dominate food and was trying a number of things. They are going to use this as a launching pad to try to take over that space. Amazon has such great scale. They have a bundle of cash to try to do things like this.

 

Yes, this is going to be a war of two heavyweights if it plays out the way Amazon likely wants: Amazon vs. Wal-Mart (which currently is dominating the food space).

You saw a small salvo over the last few months when Amazon announced that it would accept food stamps and it was going to sell a prime membership at a discount to anyone on a government assistance program.

Those two are gearing up for war, I suspect. The smaller grocers that trade publicly are getting hammered on the news. It's probably an overreaction, but groceries are a very low margin business, and the scale Amazon potentially can bring to it will squeeze those margins even farther.

Consumers might end up being winners, if Amazon can make big inroads into that space.

 

I think you have that sized up correctly. Whole Foods has been struggling. Just last month, it did serious changes to its board of directors, brought in a new CFO and laid out cost cuts. It also had been trying to shift more into its 365 brand, including lower priced 365 stores, to try to attract back some of the customers it was losing due to price.

I think from Amazon's perspective, they probably aren't buying Whole Foods as you know it, as much as they are buying a huge, already established retail network. Whole Foods has more than 450 stores. It is hard to build that from scratch. Amazon can now come in with the technology it has been testing to try to cut costs, and then use its massive scale to turn their entry into a margin war so they can try to take more and more market share.

 

It's a big question, for sure.

Amazon has been testing stores where when you take stuff off the shelf, it automatically gets added to your tab, and when you leave the store, there is an auto-payment, based on what you took. They also may try a hybrid model of some sort that uses Whole Foods' network of stores as the infrastructure for a massive food delivery service that dominates the space. You may end up having the option to drive to the local store that has the best prices due to Amazon's scale. ... or place your order online and have it delivered to you at low (or no) cost. There can be monthly food delivery services that give more "wholesale" type prices, I'd guess.

There is a lot that can go wrong in execution, though. This is all predicated on Amazon being able to squeeze costs through scale out of what is already a very, very low-margin business.