NPI's Cascadia Advocate

Offering commentary and analysis from Washington, Oregon, and Idaho, The Cascadia Advocate is the Northwest Progressive Institute's unconventional perspective on world, national, and local politics.

Friday, June 16th, 2017

Ecommerce giant Amazon to buy Whole Foods grocery chain in blockbuster deal

Merg­er mania con­tin­ues:

Ama­zon said on Fri­day that it had agreed to buy the upscale gro­cery chain Whole Foods for $13.4 bil­lion, as the online retail­er looks to con­quer new ter­ri­to­ry in the super­mar­ket aisle.

For Ama­zon, the deal marks an ambi­tious push into the mam­moth gro­cery busi­ness, an indus­try that in the Unit­ed States accounts for around $700 to $800 bil­lion in annu­al sales. Ama­zon is also ampli­fy­ing the com­pe­ti­tion with Wal­mart, which has been strug­gling to play catch-up to the online jug­ger­naut.

It’s the biggest acqui­si­tion in Ama­zon’s his­to­ry.

For Amazon.com Inc., the block­buster $13.7 bil­lion deal to buy Whole Foods Mar­ket Inc. is a giant step toward dom­i­nat­ing every part of a consumer’s shop­ping expe­ri­ence.

Ama­zon is already in your mail­box, with all of the items you’re pur­chas­ing with your Prime mem­ber­ship; your liv­ing room, with its Echo device and Prime tele­vi­sion ser­vices; your library, with its Kin­dle; and your clos­et, with Zap­pos. Now it wants to fill your fridge.

The two com­pa­nies’ press release tout­ing the deal was rel­a­tive­ly short and light on cor­po­rate mum­bo-jum­bo. Phras­es like “syn­er­gy” were mer­ci­ful­ly not used.

“Mil­lions of peo­ple love Whole Foods Mar­ket because they offer the best nat­ur­al and organ­ic foods, and they make it fun to eat healthy,” said Jeff Bezos, Ama­zon founder and CEO.

“Whole Foods Mar­ket has been sat­is­fy­ing, delight­ing and nour­ish­ing cus­tomers for near­ly four decades – they’re doing an amaz­ing job and we want that to con­tin­ue.”

“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,” said John Mack­ey, Whole Foods Mar­ket co-founder and CEO.

Whole Foods Mar­ket will con­tin­ue to oper­ate stores under the Whole Foods Mar­ket brand and source from trust­ed ven­dors and part­ners around the world.

John Mack­ey will remain as CEO of Whole Foods Mar­ket and Whole Foods Market’s head­quar­ters will stay in Austin, Texas.

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.

If this deal goes through, Ama­zon will — almost overnight — become a major play­er in the brick and mor­tar retail indus­try. It already dom­i­nates ecom­merce.

Now, Ama­zon is look­ing to become a hybrid retail­er and chal­lenge Wal­mart for suprema­cy as the nation’s largest retail­er.

Whole Foods has hun­dreds of loca­tions all over the coun­try. It’s not hard to imag­ine Ama­zon installing its lock­ers inside of each of those loca­tions, or using them to fur­ther expand its Ama­zon Fresh gro­cery deliv­ery ser­vice.

Shares in many of Ama­zon and Whole Foods’ com­peti­tors were down in trad­ing today, as investors con­tem­plat­ed the poten­tial ram­i­fi­ca­tions from the tie-up. Tra­di­tion­al gro­cers like Safe­way and Kroger are par­tic­u­lar­ly vul­ner­a­ble to an aggres­sive play by Ama­zon into the gro­cery sec­tor.

Whole Foods cur­rent­ly has an exclu­sive deliv­ery arrange­ment with Instacart which isn’t due to expire for sev­er­al more years. It’s unclear how that arrange­ment will be affect­ed by the Ama­zon acqui­si­tion should it go through. Instacart’s rela­tion­ship with Whole Foods report­ed­ly dri­ves less than 10% of its rev­enue.

The invest­ment banks that advised Ama­zon and Whole Foods on this deal (Gold­man Sachs, Ever­core Part­ners) will sure­ly make tidy sums if it is approved.

Whether share­hold­ers and shop­pers will ben­e­fit is anoth­er mat­ter. Merg­er mania has pro­duced plen­ty of deals over the last few decades that haven’t unlocked any val­ue for cor­po­rate share­hold­ers or strength­ened the U.S. econ­o­my.

Whole Foods may offer few­er jobs going for­ward if Ama­zon takes it over.

Many deals don’t receive an appro­pri­ate lev­el of reg­u­la­to­ry scruti­ny. We hope that won’t be the case with this pro­posed acqui­si­tion of Whole Foods.

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