Shares of many grocers and retailers slumped Friday after Amazon announced a $14 billion deal to buy high-end grocery chain Whole Foods Market.
Online retail giant Amazon is making a bold expansion into physical stores with a $13.7 billion deal to buy Whole Foods, setting the stage for radical retail experiments that could revolutionize how people buy groceries and everything else.
JPMorgan analyst Doug Anmuth believes that the buyout would allow Amazon to be more innovative in delivering the customer buying experience in Whole Foods stores.
But down the line, Amazon may decide to wrap Whole Foods into AmazonFresh, its existing grocery delivery service for Prime customers, Cohen said.
"I anticipate that Amazon should be able to lower the cost of Whole Foods and better enable them to compete in that market and start to bring some of those great organic products that people have liked without necessarily having to capture their whole pay check", he said.
Amazon will gain a footprint of 456 supermarket stores in North America and Britain with the acquisition of Whole Foods, boosting its delivery capacity and allowing it to compete directly with U.S. chains such as Kroger Co and Albertsons LLC.
The deal could put Whole Foods in a position to dominate two areas that grocery stores have been focusing on to gain new customers and increase revenue -convenience and high quality organic food, says J.P. Eggers, an associate professor at NYU Stern who focuses on tech and retail.
The $42 a share offer from Amazon is a 27 percent premium over Whole Foods closing stock price on Thursday. Amazon also offers grocery shipments elsewhere, but that's tough with perishable foods.
For Amazon, the deal marks an ambitious push into the mammoth grocery business, an industry that in the United States accounts for around $700 to $800 billion in annual sales.
Whole Food recently opened a store in the city in the former Hahne & Co. building between Broad and Halsey Streets.
Jon Hauptman, senior director of retail for grocery consulting firm Willard Bishop in Long Grove, Ill., said e-commerce in the supermarket industry is not highly developed.
Amazon's shares rose 2.4 percent to $987.71, adding $11 billion to its market capitalization, which in one sense makes the acquisition almost free for Amazon shareholders.
Whole Foods shares had been trading at about US$65 in October 2013, but plunged to around US$27 in September of previous year.
No. Amazon says Whole Foods stores will keep their name and be run as a separate unit of the company. Other retail and food distribution-related stocks in the USA and Europe, including Wal-Mart and Target, followed suit.
Whole Foods, founded in 1978, saw its stock peak in 2013 at $65.24. Walmart is very much taking on Amazon and utilising its network to develop ecommerce and click & collect at its thousands of stores.
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Shares of other grocery-selling chains like Kroger, Target , Sprouts Farmers and Costco experienced a dip after the announcement. Analysts say the Whole Foods footprint and distribution channel could theoretically make 5-minute deliveries a reality.
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