A new platform for Whole Foods? How deal could upend grocery

A new platform for Whole Foods? How deal could upend grocery

Yes, it does over $140 billion in sales annually, and acquiring Whole Foods adds another $15.7 billion in fiscal-year sales, but that's not really a lot when you consider industrywide revenue, and it's still miles south of the sales that Walmart racks up.

Amazon might. Besides, having already paid for Whole Foods in one day on Wall Street, it has nothing to lose in trying. Rivals, meanwhile, will be watching Amazon's every move. But up until now, the e-commerce titan has managed to irrevocably alter the industry without making much of a dent in retail's biggest moneymaker of all-the $800 billion grocery business. You also get meal delivery offers when it's rainy (since the store remembers you seldom venture out when the weather is bad) and a reminder when your laundry detergent is probably running low. While the market in general wasn't fazed by this news, many grocers and other retailers were. The Motley Fool owns shares of and recommends Amazon and Whole Foods Market.

Major acquisitions like these can sometimes spark a bidding war.

Walmart isn't actively considering a bid for Whole Foods, which Amazon said it would purchase for $13.7 billion last week, according to a report by Reuters. Alternatively, Amazon could look to bring Whole Foods stores to Australia. Amazon is undoubtedly viewing the opportunity as a more lucrative one.

The merger announcement came just nine days after Publix announced it would expand a pilot program with San Francisco-based Instacart to all 1,148 Publix stores in six states by 2020. "Wall Street's reaction is certainly telling that story". Eleanor McCarthy, who said she lives "near Newburyport", has a son who works for Amazon in Los Angeles. The only retailer that might see an immediate competitive threat is Target, who is already struggling in the grocery arena. It is in a better position than other retailers such as Kroger (KR), Costco (COST) or Target (TGT) coming in over the top, the analysts said. "We're not Whole Foods people and Amazon people".

Speculation has it Amazon will use its new fleet of Whole Foods stores as distribution centers to supplement its Amazon Prime and Amazon Fresh delivery services, dramatically scale back on workers in favor of automation, and use Whole Foods as a testing ground for "the store of the future".

"Wal-Mart's grocery business is relatively well-differentiated vs. where Amazon and Whole Foods is likely to go", says MKM's McKeever.

"Grocers that are customer-centric are going to win", said Shannon Warner, VP of Capgemini Consulting's consumer products and retail practice in North America.

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The country's e-commerce market grew over 50 percent previous year while hypermarket and supermarket sales flatlined, according to consultancy Bain & Company.

Amazon wants to dominate groceries. The month of May saw increases of more than 600 percent year on year. The search marketing intelligence provider analyzed 124 non-branded grocery store and grocery delivery keywords from June 2016-May 2017.

Omnichannel dominance will require physical stores, CBRE said, "giving the initial advantage to those players with a wide existing store network".

"Over time, there could be other formats that evolve that-that might-wouldn't be branded Whole Foods Market, potentially, wouldn't be our standards", Mackey said in a town hall meeting last Friday, a statement Fortune said could mean a new Whole Foods brand on the horizon. By comparison, Walmart has about 4,700 stores, while Kroger has almost 2,800 under a variety of names. Though online orders are estimated to account for just 1 percent to 2 percent of grocery sales, that figure is expected to grow.

The Montgomery Global Fund and Montaka own shares in Amazon. Amazon has been in the grocery business for a while with its AmazonFresh business, but the venture hasn't been very successful.

Those are intriguing questions, but here's another one: Is Amazon primed to violate federal antitrust laws created to protect competition and consumers?

"Both Amazon and Whole Foods have a reputation for being tough customers and are likely to exert significant power over their suppliers", he said.