Amazon Purchase of Whole Foods Could Transform Grocery Delivery Business

Amazon Purchase of Whole Foods Could Transform Grocery Delivery Business

Many stocks, including Target and Smart & Final Stores, were plummeting more than 10 percent before evening out later in afternoon trading.

The $13.7 billion deal lifted shares for both companies, punished the stocks of grocery companies who now have even more reason to fear Amazon's moves onto their turf, and added a cool $2 billion to Jeff Bezos' net worth.

Whole Foods recently overhauled its board and redoubled cost-cutting efforts, seeking to change a high-price image that has tagged it with the nickname "Whole Paycheck".

Shoppers enter a Whole Foods Market, Friday, June 16, 2017, in San Antonio.

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". But Mahaney said the acquisition doesn't suggest that Whole Foods was in an especially weak state.

Amazon expects to reduce headcount and change inventory to lower prices and make Whole Foods competitive with Wal-Mart Stores Inc. and other big-box retailers, according to a person with knowledge of the company's grocery plans.

For starters, acquiring Whole Foods' 440 U.S. stores - many of them in primo locations - will bolster the network for AmazonFresh, the company's online grocery delivery service.

"The conventional grocery store should feel threatened and incapable of responding", Wedbush Securities analyst Michael Pachter said.

The deal could be "transformative", Moody's lead retail analyst Charlie O'Shea said, "not just for food retail, but for retail in general". Wal-Mart, which has the largest share of the USA food market, has been working on lowering prices, while Target has been struggling to turn around its grocery business. It announced last Friday that it had agreed to buy online clothing company Bonobos for US$310 million.

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But if Amazon can be the one-stop shop for everything — groceries had been one of the key missing elements — customers would have even less of a need to go to Walmart or elsewhere.

The S&P 500's retail and food categories were hit particularly hard by the news - especially retail businesses who have expanded into the grocery realm in recent years.

It's unclear what Amazon will do with Whole Foods stores as they will remain under the Whole Foods brand and under Mackey's guidance, but Amazon will likely use them to expedite delivery and as a testing ground for any number of tech and customer-focused experiments.

The organic grocer, which was founded in 1978, would continue to operate under its existing brand.

Some investors may be wondering if Amazon will disrupt grocery stores the way it upended the bookstore business.

Walmart stocks dropped 4.6 percent to close at $75.27, while Target ultimately saw shares fall more than 5 percent, closing at $52.60.

Hetu said Amazon isn't likely to bring that to Whole Foods right away but could deploy pieces of it to further cut costs. And shoppers may be skittish about having Amazon take over one more element of their shopping experience.

Whole Foods, which has built a following that buys its organic meats, produce and other items, is in a strong position to persuade shoppers to place orders online and let store employees do customers' marketing for them, he said.

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