Wednesday, 23 May, 2018

Geographic analysis: Amazon and Whole Foods footprints are remarkably similar

Sherri Watson | 27 June, 2017, 08:18

On Friday Amazon announced its intention to acquire Whole Foods Market, a supermarket chain with more than 460 stores across the US, Canada and the United Kingdom, for $13.7 billion.

The online retail giant's surprise acquisition of Whole Foods comes at a time when Amazon has been inserting itself into the grocery market, and Whole Foods had been cutting prices.

Whole Foods' retail locations could also help Amazon make last-mile grocery deliveries.

Fitzgerald, who has a buy rating on the stock with a 12-month price target of $1,150 (16% upside from the current share price), suggests that Amazon could even offer a special 1-hour grocery delivery service. (ROST), Wal-Mart Stores Inc. Mergermarket's Lim says the first challenge for Amazon is how to successfully run a physical supermarket chain.

In order to shop, customers download the free Amazon Go app, and swipe their phone screens to scan a QR code as they enter the store through sleek turnstiles. A year and a half ago, Mackey says he had a dream that Amazon bought Whole Foods Market, and he told his wife about it when he woke up that morning.

Experts note that most Whole Foods shoppers are already familiar with Amazon and are lining up for what could be a smooth transition. Amazon swallows up whole foods in a monster move, that will cost close to 14 billion dollars. "We just had these big grins on our faces, like, 'These guys are awesome'".

Drew Herdener, an Amazon spokesman, said in a statement the company has "no plans to use no-checkout technology to automate the jobs of cashiers at Whole Foods and no job reductions are planned".

Jefferies' Brian Fitzgerald provides some more in-depth analysis of the strategy behind the deal: We believe the WFM (Hold) acquisition would give a boost to AMZN's efforts with Fresh which was launched 10 years ago and operates in 20 metro areas in the USA and overseas. Amazon's resources and technology might help expand those stores, some analysts say. Pachter said Amazon might get customers over those fears if they know the delivered items are the same as those they would find at the local store.

The deal was set in motion when Mackey and fellow executives Jason Buechel, Ken Meyer and David Lannon flew up to Amazon's Seattle headquarters, according to a transcript of a town-hall meeting held Friday with employees.

He said the two companies are now "engaged", but still need to wait until the transaction gets regulatory approval and is made official. Whole Foods has seen its sales slump and recently announced a board shake-up and cost-cutting plan amid pressure from activist investor Jana Partners. But based on Mackey's stirring testimony, it would take an terrible lot to make star-crossed lovers out of Amazon and Whole Foods.

Mackey compared the relationship to an "old traditional marriage, where there are all kinds of rules and chaperones".