Amazon-Whole Foods deal hammers grocery stores; Dow ticks up
Amazon-Whole Foods deal hammers grocery stores; Dow ticks up
20 Junio, 2017, 12:06
News of the deal sent shares of traditional retailers such as Walmart, Target, Costco and Kroger tumbling as much as 13 per cent as investors tried to digest the implications of an Amazon-backed grocery chain.
"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.
The Journal said buying Whole Foods allows Amazon to quickly grab a bigger portion of the estimated $674 billion US market for edible groceries, according to consulting firm Kantar Retail. Amazon is buying Whole Foods Market: a $13.7 billion deal.
Amazon has agreed to pay $42 per share in cash for Whole Foods, a 27 percent premium on the Austin, Texas-based grocer's closing share price on Thursday.
The deal for the 39-year-old, upscale Whole Foods, which has posted seven straight quarterly sales drops as competitors have increased their organic offerings and been more aggressive on pricing, follows its board shake-up and new cost-cutting plan last month amid pressure from activist hedge fund investor Jana Partners LLC. The acquisition would add Whole Foods' 87,000 employees to Amazon's payroll, which as of the end of the first quarter had 351,000 people.
Peggy Hall, a Unionville resident shopping Friday at a Whole Foods supermarket in West Hartford Center, said she would probably not buy food online.
That's frustrated investors saddled with a drop of almost 43 percent from the start of 2014 through Thursday, while the rest of the stock market marched 32 percent higher to record heights.
Meanwhile, in a letter to its customers, Whole Foods Market, Inc.
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Whole Foods has already been reducing prices to try to turn around its worst sales slump since going public in 1992. The Journal said the acquisition "could make Amazon an overnight heavyweight in the all-important grocery business..."
Amazon boasts itself as No. 2 on Fortune's 2017 list of World's Most Admired Companies and Whole Foods as No. 28.
"The entry of the king of web retail into the food space has to rattle the other companies", said Brad McMillan, chief investment officer at Commonwealth Financial Network.
"I think we will be a bell-weather for what will happen around the country", said Ed Fox, marketing professor at the Southern Methodist University Cox School of Business.
The online retailer had been experimenting with brick and mortar retailing in recent years, but Whole Foods' sagging stock price provided the opportunity to take over an existing business, rather than build one from the ground up. Whole Foods CEO John Mackeyhad lambasted the hedge fund as "greedy bastards." It seemed unlikely that Instacart would hold on to its agreement to deliver for Whole Foods, soon to be owned by its goliath rival. According to multiple reports, Whole Foods also invested in Instacart.
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