“Alexa, buy me Whole Foods”

Amazon announced their intent to acquire high-end grocery chain, Whole Foods, for $13.7 billion. No doubt, this is a rather non-traditional acquisition and one that peaks SEG’s interest. Amazon hopes the acquisition will fuel their online grocery initiatives, particularly Amazon Fresh, as they see great potential within this market. According to CNBC, 25% of U.S. consumers currently buy some groceries online, a figure that is expected to rise to 70% in the next 10 years.

Amazon’s intent with Whole Foods is a topic of interest, especially after the introduction of Amazon Go stores in December 2016. Already at these stores, Amazon is disrupting the status quo. The store will utilize machine learning technology to detect items in your cart and automatically charge your account when you leave, thus eliminating the need for checkout lanes. The first store opened in Seattle earlier this year (Read more).

As Amazon is typically known for their competitive pricing structure, it will be interesting to see how they adapt with Whole Food’s (also known as “Whole Paycheck”) upscale pricing. This raises concerns for large grocers, for fear that they will need to cut prices in order to compete with Amazon. 

The acquisition amplifies competition with larger grocers such as Walmart. Since the announcement, Whole Food’s stock rose 28%, while other competing grocery stores struggle to keep up  (Walmart (WMT) down 6%, Kroger (KR) down 14% since market close 6/15). Yet, as the Amazon deal blows up the headlines, Walmart also made moves today. Diving deeper into the e-commerce industry, Walmart announced the acquisition of Bonobos, an online menswear fashion company, for $310 million. This follows a series of acquisitions of e-commerce companies over the past year:

  • Jet.com: a smart shopping platform ($3.3 bil. August, 2016)
  • Maisonette: an online marketplace for baby and child products ($2.78 mil. December, 2016)
  • Shoebuy.com: an online retail of footwear for men, women, and children ($70 mil. Jan, 2017)
  • Moosejaw: a retail apparel store for men,women, and babies, with an online store ($51 mil. February, 2017)
  • ModCloth: a retail and online retail store for women (March 2017)

The competition for an omni-channel presence is on.