First it was bookstores. Then retailers. Now, grocers. Amazon has experimented with various industries, but never really taken a deep dive like this. Amazon announced Friday out of the blue that it will acquire Whole Foods for $13.7 billion. The news sent shockwaves throughout the grocery industry, as well as with big box retailers, with Wal-Mart, Target, Costco, Kroger, and other competitors seeing shares plummet on the news. Now there’s speculation that another player might come in and outbid Amazon. Who could realistically make that happen? And who’s most likely to come out on top?
What is Amazon’s Next Move?
Whole Foods has recently been under a lot of pressure from activist investor Jana Partners to sell itself after struggling financially. And while the board’s thinking was to merge with another grocer, the current solution is even better. Now the high end grocer isn’t only selling itself, but doing so at a 27 percent premium, with Amazon agreeing to acquire the company for $42 per share.
And the deal makes perfect sense for all parties.
Amazon has been experimenting with its online grocery business, and this investment exponentially accelerates Amazon’s growth in that market. Not just online, but offline as well, as Amazon instantly gets footholds in 460 physical locations. That’s 460 starting points to launch full grocery delivery services to compete with Instacart and deliver fresh everything right to Prime members’ doorsteps at the touch of a button.
Whole Foods CEO John Mackey will continue in his current role after the deal closes, but Amazon will be able to bring its technology (and competitive pricing) so the luxury grocer. Shoppers will be able to order what they need online and swing by the store to pick it up, or have everything delivered directly to their homes.
But one existing competitor could try and outbid Amazon… Wal-Mart. The big box retailer has the most to fear from Amazon, especially after Amazon recently targeted Wal-Mart shoppers with discount pricing for Amazon Prime members receiving government support. And while both have the money to take Whole Foods, the reality is that Amazon has a clear plan in place, where Whole Foods would simply be an extension of Wal-Mart.
Whole Food’s activist investors will push for the deal with Amazon, and CEO Jeff Bezos will do whatever it takes to see the deal through. Shares of Amazon (AMZN) have jumped UP on the news and will continue to do so, especially once the deal closes later this year.
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