Thursday, 29 June, 2017

Amazon WFM Deal Has Raft of Benefits, Potential Other Suitors, Says Needham

Mae Harvey | 20 June, 2017, 01:24

Amazon.com, Inc. (NASDAQ:AMZN) announced on June 16 a surprise acquisition of Whole Foods Market, Inc.(NASDAQ:WFM) for $13.7 billion (all-cash, $42/share). Though Amazon hasn't said so, analysts are contemplating how Amazon's innovative automation throughout its businesses will manifest in the Whole Foods franchise.

Stevens shared a sentiment expressed by other aficionados: excitement about the convenience of getting groceries from the store delivered to her mixed with concern about changes to a company that helped pioneer the organic-food market in the U.S. He righted the Whole Foods ship by refocusing on brick-and-mortar retail and going on an expansion boom, which would boost the stock price five-fold at its peak. The upscale grocery chain recently replaced much of its board, added a new CFO and developed plans to slash costs and tweak operations.

Amazon, Maute noted, has already dipped its toe into brick-and-mortar retailing with the likes of its Amazon Books bookstores and ongoing experiments with small-format grocery stores.

In addition to Amazon, other companies that had reportedly been looking at Whole Foods in recent months included three of the country's largest supermarket chains: Albertsons, Kroger and Publix. John Mackey will remain as CEO of Whole Foods Market and Whole Foods Market's headquarters will stay in Austin, Texas. Indeed, 76% of past four-week Whole Foods shoppers also shop Amazon.com.

Demographically, buying a discount retail chain would be an interesting complement to the Whole Foods deal.

Ladd, who left Amazon in March, said Amazon will seek to eliminate checkout lines by using technology that automatically scans goods as customers add them to their shopping carts.

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The Amazon-Whole Foods transaction is expected to close in the second half of 2017 following regulatory approvals and a vote by Whole Foods shareholders.

It's no secret that Whole Foods has struggled with its expensive image, aptly captured in its "Whole Paycheck" nickname. Though it's not yet clear whether Whole Foods will continue to operate with its current strategy but it is likely as Mackey will continue to operate as CEO. Now he has his eye on the grocery business - and the way you get your produce may never be the same. "Now, Amazon can offer the critical ability to touch, see, hear and smell groceries, while creating a localized, national delivery network for better, fresher food, fast".

In terms of inventory and infrastructure, Maute said, acquiring Whole Foods could give Amazon a solid foundation for ramping up online grocery sales and delivery via Amazon Fresh. Food and CPG manufacturers will now need to work more closely with Amazon and leverage their assets, including product innovation, sales/marketing, loyal customers, owned media, etc., and partner with all retailers in their initiatives to drive compelling shopping experience. "It is a tsunami that will shake up and change grocery retailing".

"I just don't want Whole Foods to change how it is fundamentally", Stevens said. Whole Foods' private-label 365 brand is well received by consumers, but it doesn't now have that much penetration. This seems ironic for the online retail giant considering that customers have been using its online retail platform for the longest time to carry out price comparison while at rival brick and mortar stores.

Meanwhile, Whole Foods has a partnership with Instacart, a company that uses "shoppers" who pick up items in stores for customers who have ordered groceries online.

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