Groceries by Amazon - sooner then you think
Amazon meet Whole Foods... That will be 13.7 billion dollars please.
Just when I thought the market was getting into a static mode – on Friday Amazon bought Whole Foods Grocers for 13.7 billion dollars firmly establishing its grocery presence its been dreaming of for so many years.
For the longest time, Amazon has been mulling an entry into the grocery game and with Whole Foods having problems of its own, I think this was the perfect opportunity for Amazon to make its long awaited move.
Why the deal makes sense?
For many people, the idea of Amazon and the grocery business may seem a bit disjointed. But Amazon has been planning a move into grocery for years. They even launched a prototype grocery store in which there were no cash registers or checkout counters. Consumers just used a specialized Amazon App that tracked their purchases through sensors in the stores and they would be billed. On top of that Amazon has one of the best distribution and logistic networks – that rivals with the likes of UPS and FedEx. With already airtight and cheap transportation costs the additional volume with food should help lower the costs and boosts margins. Amazon may even choose to open up their own shipping and delivery company with their network – but that may be awhile.
The deal also gives Amazon a physical footprint which will expand their reach and capture additional business.
Why Whole Foods?
One of the reasons I think that Amazon specifically chose Whole Foods is due to the same philosophy that the companies follow. Both companies are respective game changers in their given industry – Amazon with retail and Whole Foods with grocery. One of the reasons why Whole Foods was so successful is due to the fact they were well ahead of the pack in cementing themselves at the center of the organic foods market. For years, Whole Foods was the only place that people could buy quality organic ingredients and products which fueled their success for years to come. It is only up till recently that other retailers caught on and started their own line of organic foods.
It is obvious that Amazon is trying their hand at online food delivery. While delivering perishable foods will be an issue – Amazon already has same day Prime delivery service in some areas which makes same day food delivery seem plausible. Obviously it will take time for synergies to develop between the two companies - this deal although monumental should not come as a shock to anyone.
While this deal does put Amazon at the head of the pack in food delivery – grocers and retailers will be quickly finding ways to counter-strike and possibly start their own food delivery service and find other ways to keep their customers happy. It will be interesting to see the route Amazon takes as they move forward with the acquisition. All major grocers and drug stores were trading lower on Friday - most likely investors fear that Amazon will take their market share. It will be interesting to see how the market opens Monday and the counter moves companies will be launching in the coming weeks.
Disclaimer: All of the above information is my own personal opinion. I do not own any holdings in any of the companies that are mentioned above. Please do your research and consult with a licensed representative before making any financial decision.
Thumbnail Images; Getty Images, Amazon, Adweek