Amazon has confirmed plans to buy Whole Foods in the company’s biggest acquisition to date. Here’s everything you need to know about the deal, including why Amazon is buying Whole Foods, analysis, what the buyout means for grocery stores globally, and how Amazon’s share price has been affected.
Amazon Whole Foods Deal: What do we know so far?
On Friday, June 16, Amazon Inc. confirmed that it would pay an incredible $13.7 billion USD (£10.7 billion) to purchase Whole Foods Market Inc.
The deal, which is Amazon’s biggest buyout ever, will see the company pay $42 in cash per share of Whole Foods.
It has also been confirmed that John Mackey, the co-founder and CEO of Whole Foods, will continue to run the business.
The deal trumps Amazon’s previous biggest acquisition, when the retail giant bought out Twitch Interactive Inc. for $970 million in cash back in 2014.
In a press release, Amazon explains the next steps for the acquisition: “Completion of the transaction is subject to approval by Whole Foods Market’s shareholders, regulatory approvals and other customary closing conditions. The parties expect to close the transaction during the second half of 2017.”
Amazon CEO Jeff Bezos says “millions of people love Whole Foods” and Amazon “wants that to continue” (via Wikimedia Commons)
What is Whole Foods? Locations, employees, market cap, value and…South Park
Whole Foods Market Inc. is a major US-based supermarket chain that operates across 431 locations through the USA, Canada, and the United Kingdom.
The company opened back in 1980 in Austin Texas, and now has 91,000 employees globally.
Whole Foods is currently publicly traded on the NASDAQ, and became a Fortune 500 company in 2005. It’s also the 30th largest retailer in the United States, based on 2014 revenue.
At the time of writing, Whole Foods Market Inc.’s market capitalisation is $12.53 billion. That’s the value of a single share combined by the total number of shares issued – just one way of gauging the financial worth of a company.
Whole Foods was also very famously parodied in the animated TV series South Park. Here’s a clip:
Why is Amazon buying Whole Foods? Analysis and official statement from CEO Jeff Bezos
It’s not exactly clear what Amazon’s plans for Whole Foods are just yet. In a frustratingly vague statement, Amazon CEO Jeff Bezos said: “Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy.”
Bezos continued: “
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Whole Foods CEO John Mackey is similarly opaque: “This partnership presents an opportunity to maximize value for Whole Foods Market’s shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers.”
The obvious connection is with AmazonFresh, a subsidiary of Amazon that operates a grocery delivery services through the USA and UK. The service is only currently available in select locations in those two countries, so by buying Whole Foods, Amazon could be making a serious play to dominate the grocery market in areas where Whole Foods currently operates.
Amazon may want to use Whole Foods as an easy way to expand its existing AmazonFresh grocery delivery service (via Flickr)
Speaking to Bloomberg, Wedbush Securities analyst Michael Pachter said: “Amazon clearly wants to be in grocery, clearly believes a physical presence gives them an advantage. I assume the physical presence gives them the ability to distribute other products more locally. So theoretically you could get 5-minute delivery.”
Amazon has also shown great interest in brick-and-mortar retail – despite having built almost all of its retail empire through online channels – with the launch of Amazon Go.
In October last year, the company announced plans to build Amazon Go convenience stores that would operate on an automatic system that didn’t require physical staff. The first such store opened to Amazon employees back in December, and a store designed for use by the general public is expected to open later this year.
By purchasing Whole Foods, Amazon may be hoping to rollout this autonomous shopping experience across existing Whole Foods stores – although such a move hasn’t been officially confirmed. However, the decision would make sense as a cost-saving ploy in terms of reducing the need for staff, and would also mean Amazon wouldn’t need to invest further in retail locations, as WSJ Financial Editor Dennis K. Berman neatly outlines:
And if all of the above is wrong, our in-house video producer Tom Honeyands has his own crackpot theory that might just be on the money:
How will Amazon’s Whole Foods acquisition affect grocery stores?
Whatever Amazon’s reason for buying out Whole Foods, it’s clear that supermarkets across the UK and USA will be feeling very nervous right now.
Amazon’s sweeping dominance online has left the firm with very well-padded coffers, and now the company will have overwhelming access on a brick-and-mortar level too. If Amazon can successfully reproduce its rapid delivery system that it uses for general goods for grocery shipping and retail, it could cause major problems for food giants like Walmart and Tesco.
In a statement sent to TrustedReviews, Maria Prados, VP of Global Retail and eCommerce at Worldpay, said: “
“With one in ten Brits now doing all their grocery shopping online, it is now easier than ever to buy household necessities from the comfort of our sofa,” she continued.
Prados added: “We have reached a tipping point in the evolution of the UK grocery market, and it will be interesting to see whether Amazon will continue to focus on their culture of convenience and reliability, or whether they will end up creating a whole new online shopping experience, taking the chore out of the weekly shop.”
Whole Foods Market in the Lower East Side of New York (via Wikimedia Commons)
Speaking to Reuters, Jan Rogers Kniffen, Chief Executive of retail consultancy J. Rogers Kniffen WWE in New York, said: “I think that I would not like to be somebody playing in the grocery space right now.”
“Whole Foods has given up a lot of market share because they didn’t capitalize on being the leader in organic, but they still have a footprint,” he continued. “It’s a little different when you’re Amazon. Whole Foods has to make money, Amazon doesn’t have to make money. All Amazon’s got to is grow. And now they’ve got a platform for doing that!”
Kniffen closed: “I think we’ll see very aggressive pricing out of Amazon in grocery, which will include the Whole Foods component.”
Amazon Share Price: How has Whole Foods buyout affect Amazon stock?
Unsurprisingly, this acquisition has improved Amazon’s share price, which is up 2.62% to $989.46 USD per share today, as recorded at the time of writing. However, it’s still below the firm’s year high of $1,011.34 per share.
The company’s market capitalisation is now $466.55 billion, which means it currently ranks as the fourth most valuable company in the world, behind Apple Inc., Alphabet (Google’s parent company), and Microsoft.
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Do you think Amazon buying Whole Foods is sensible? Let us know in the comments.