Last Friday Amazon.com Inc. announced that it will purchase Whole Foods Market Inc. for $13.7 Billion. This represents a 27% premium over Whole Foods stock price from Thursday. CoFounder John Mackey will continue to run Whole Foods after the purchase.
The purchase could stand as a substantial change to how consumers buy groceries. Competitors’ stocks dropped after the announcement; Walmart’s stock fell 7% and Kroger Co. dropped 17%.
The deal makes sense. Amazon has been planning to get into brick and mortar stores with state of the art technology. In December of 2016 Amazon released the video below highlighting stores without cash registers where you can just walk out with your groceries.
What Amazon Gets
Amazon gets a network of brick and mortar stores with over 460 locations in over 20 States. However, it is not just the size of the supermarket chain that is appealing. Whole Foods has a huge amount of brand loyalty and a great retail shopping experience.
Retail is all about consumer experience, and Whole Foods has it. The staff is pleasant, knowledgable and the stores are always clean. Whole Foods falls on the opposite end of the spectrum with stores like Walmart both on price and experience.
Whole Foods’ goes beyond the walls to crafts a specific sense of community and charity at each of its locations. Additionally, Whole Foods interacts with local sources foods, produce and small brands.
From Whole Foods’ Website
A Friendly and Fresh Connection
Supporting local farmers, ranchers, growers and producers helps connect the local community to the people who produce the foods we consume. It also helps keep us connected to the growing seasons and to the unique flavors and diversity of local crops and creations.
Small local farms are a valuable component of a community’s character, helping maintain agricultural heritage, preserve land use diversity and moderate development. Local product producers help create products that feature the flavors, smells and textures of a community – and are great for sharing with out-of-towners!
Extending Online Food shopping
The play allows Amazon to step up its online food ordering game. The Whole Foods brick and mortar stores will likely serve as fulfillment centers for online orders for both Whole Foods and Amazon.
As a whole (no pun intended) the deal represents a major step for Amazon into the brick and mortar business of groceries which seems to be one of the last frontiers where consumers still buy goods in person.
This should give Amazon a reach over almost every consumer purchase.
What Whole Foods Gets
Whole Foods gets access to Amazon’s technology. This presents the opportunity for exceptionally high levels of efficiency on the back end for storage and shipping as well as new methods for consumer shopping and checkout.
If executed correctly this could mean more profit, lower prices, better consumer experience and expanding far into competitors market share.
Mackey keeping control
Prior to the announcement it was rumored that shareholder Jana Partners were considering an attempt to remove John Mackey from his role as CEO through shareholder activism.
Mackey who Cofounded the business is outspoken and extremely passionate about his role as CEO. Earlier this month Mackey referred to the Activist investors at Jana Partners as “Greedy Bastards.”
In an interview about shareholder activism the 63 year old CEO had the following to say:
“These people, they just want to sell Whole Foods Market and make hundreds of millions of dollars, and they have to know that I’m going to resist that… That’s my baby. I’m going to protect my kid, and they’ve got to knock Daddy out if they want to take it over.”
I think this is a great play for Amazon, Whole Foods & hopefully the consumer. Living in NYC I love the idea of an easier way to have food delivered to my apartment, or a faster experience at checkouts. Both companies seem to have the potential to benefit from the sharing of large data. The deal seems to make a lot of sense for a lot of reasons. I look forward to seeing whats next for AmazFoods.