Can Amazon persuade enough people to buy fresh food online?

Randall Padilla
June 27, 2017

Goldman advised Inc and Evercore advised Whole Foods Markets Inc on Amazon's $13.7 billion acquisition of Whole Foods that will see the us organic grocery chain become part of the world's largest internet retailer.

The merger of Whole Foods and Amazon is expected to close later in 2017 after gaining approval from USA regulators and Whole Foods' stockholders.

"This partnership presents an opportunity to maximize value for Whole Foods Market's shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers", Mackey said.

So news that Amazon has bought USA supermarket chain Whole Foods for $13.4bn is interesting but perhaps not surprising. Until now, Amazon has largely focused its grocery efforts around its Amazon Fresh subscription service, which promises quick food delivery for online orders. Amazon's move aims at the heart of the Bentonville, Arkansas-based retail giant's business - groceries, which account for 56 percent of Wal-Mart's $486 billion in revenue for the year ending January 31.

"It's pharmacy. It's having the ability to put stores that are similar to Apple stores inside Whole Foods", he said.

The deal sent shockwaves across the food distribution market and beyond.

Whole Foods' conversations with banks took place before the company was approached by Amazon, so Goldman was also vying for a role with Whole Foods.

The deal unfolded after Jeff Bezos, Amazon's chief executive officer, approached Whole Foods CEO John Mackey about a month ago and received an eager response from Mackey, two people familiar with the matter said.

$3B: Drop in food and drink sales at America's brick-and-mortar stores during this year's first quarter.

But Michelle Grant, head of retailing at market research firm Euromonitor, said Amazon could use an obscure part of the Whole Foods portfolio - Whole Foods 365 - to lure Wal-Mart shoppers.

Because Whole Foods stores are mostly limited to urban areas, the acquisition doesn't help Amazon reach rural customers, many of whom are served by Walmart.

It also means that Amazon is going to be a huge competitor with other retailers, starting the foodpocalpyse and sending other grocery stocks crashing. That fits with Whole Foods private-label push to compete on price, and gives Amazon a bigger foundation on which to develop its own food brands.

"People tend to do what's easy and clicking on something on Amazon is so easy", Funari said.

Amazon spokesman Drew Herdener said plans do not include reducing jobs as the result of the deal and that the company does not plan to automate Whole Foods cashiers jobs with Amazon Go technology.

Walmart, which has the largest share of the US food market, has already been pushing harder into e-commerce to build on strength in its stores and groceries.

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

CNBC noted: "Whole Foods would be required to pay Amazon a $400 million breakup fee if the deal is broken for another bidder".

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