Amazon buys Whole Foods for $13.7 billion
Major Ecommerce player Amazon has been talking about a number of things over the past few years. Two of them have been grocery sales (remember Amazon Fresh?) and brick-and-mortar retailing. Last week, those conversations collided and progressed all at once: Amazon has bought trendy organic food chain Whole Foods Market Inc. for $13.7 billion. Jeff Bezos deciding to pursue his dream of becoming a grocer might not thrill you, but trust us: this is big news for Amazon, for Ecommerce, and for retail.
Amazon’s share price has risen by 38% over the last 12 months
SOURCE: Yahoo Finance
Amazon is a seriously ambitious company – Bezos wants it to be a literal ‘everything company’ on a scale that would be unrealizable in the physical world alone. And the acquisition of Whole Foods is just the latest push Bezos is making into his customers’ lives. Amazon created the Kindle and pioneered ebooks, meaning it controls millions of people’s libraries.
It sells everything from consumer electronics to fashion, and plans to add even more categories (cars and prescription drugs, for example). It’s your personal assistant (Alexa), your entertainment (Prime Video and Twitch), your music (Prime Music and Amazon Music), your IT guy (Amazon Web Services), and – maybe one day soon – the maker of your mobile phone. If you’re a Prime customer, Amazon almost certainly sends you more post than anyone else.
And now, Amazon has made its way into your fridge too. But why is that a big deal?
Fresh food is a huge new product category for Amazon that its struggled with before. Customers are reluctant to buy avocados unless they can touch them, and food is perishable, unlike books and hair straighteners. Groceries are an $800 billion market – it may be taking him a while, but Bezos is going to try to innovate it the same way he did bookselling in the 90s. If he’s going to succeed, Whole Foods is a great place to start, because its mastered fresh food: the company makes two-thirds of its sales from perishable goods and has a logistics operation to rival Amazon’s own in regards to efficiency.
Perhaps even more interesting, though, is the fact that Amazon – probably the world’s most famous Ecommerce company – now has hundreds of physical stores all round the country. The combination of a large, top-quality brick-and-mortar ecosystem with an even bigger digital one will be fascinating for investors to witness. And, given Bezos’ preference for innovation, it could redefine retail.
Michael Pachter, analyst at Wedbush Securities Inc., 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.”
Dominion holds Amazon in its Global Trends Ecommerce Fund.
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