Amazon buys Whole Foods for $13.7 billion
Amazon announced on June 16, 2017, a $13.7 billion deal to buy Whole Foods. Amazon agreed to pay $42 per share in cash for Whole Foods at roughly 27% premium to the stock price at Thursday’s June 15th close. In addition to the deal, CEO John Mackey of Whole Foods will remain in charge of the brick and mortar business (Turner, Wang, and Soper Bloomberg). Mackey under pressure by the board to find an acquirer for the business was able to keep his job while simultaneously giving the stock price a bump. Coincidently the stock price rose 27% bringing it near the transaction price at which Amazon had bought them. Amazon’s strategy was clear in that it was looking for a distinct brick-and-mortar presence and struck gold in acquiring Whole Foods at the price it did. Some investors believed this deal was made hastily on the end of Whole Foods where their CEO, John Mackey, described the partnership as “love at first sight” (Alex Morrell Business Insider Magazine).
It’s clear in today’s day and age we are moving more towards e-commerce and ordering goods online however that idea has been slow to catch on within the fresh produce and grocery industry. It’s our belief that Amazon is looking to establish itself physically in larger local markets to establish theoretical same-day delivery. Or better yet, 30, 10, or even 5 minute delivery based on location and operational excellence Amazon certainly has in spades. This doesn’t bode well for new competitors to Amazon like Target, Kroger, Wal-Mart, etc. because although people do enjoy physically walking into grocery stores for purchases. The distribution scale of Amazon allows for fresh delivery that most, if not all competitors do not have an answer for yet. Risks seem to pertain to only Amazon at this point as it is a full 100% acquisition of Whole Foods. Whole Foods’ business has been ailing in recent months so it will be to Amazon’s challenge to bring the business back to the fold.
The strategy for this deal will involve leaving the current Whole Foods CEO in place, in order to cause minimal disruption over the acquisition. An integral part of the approach will be to understand where the powers of a consolidated supply chain and other potential synergies in both of their operations are. It is imperative to understand their current processes since the business models are totally different, online retail vs brick & mortar food retail.
From Amazon’s standpoint, bringing technology to the Whole Foods operations could end up bringing efficiencies in inventory and supply chain management which can translate into better margins for Whole Foods. The technology investments that Amazon can do to Whole Foods could be the key to the sustainable margins of a brick & mortar retailer moving forward.
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