Online retail giant Amazon announced June 16 that it is planning to acquire organic and natural grocer Whole Foods Market in a deal valued at $13.7 billion, or $42 a share.
Among the promises that Amazon made are that Whole Foods founder and CEO John Mackey will stay on as the grocery chain’s leader, that Whole Foods Market will keep its name, and that it will continue to “source from trusted vendors and partners around the world.”.
Watchers of the merger expect Amazon to bring its technical edge to the deal, while Whole Foods could be Amazon’s foot in the door to the health food market and brick and mortar storefronts, which Amazon is just tapping into.
“I think for Amazon it gives a real foothold now in the food market, which is what they have wanted for a very long time and which to do on their own to build up a substantial presence is very difficult,” Neil Saunders, managing director at Globaldata Retail in New York told Reuters. “It gives them that opportunity to really grow their presence in grocery which is what they wanted to do all along.”
Amazon already has its own grocery service called AmazonFresh and is experimenting with a “click and collect” model where customers can buy online and collect their purchases in person. In May, Amazon opened its first brick and mortar store in New York City.
Contrast that to Whole Foods, which has over 460 stores in the United States, the United Kingdom, and Canada.
“It gives [Amazon] a presence, the stores can be expanded to do other things. Amazon has talked about having a brick-and-mortar retail presence where perhaps people just go in to look at things,” Tim Ghriskey, chief investment officer of Solaris Asset Management in New York City told Reuters. “This could be part of that strategy—you take part of a Whole Foods Store and you add in Echo and all the other Amazon products. More and more we will see Amazon brand products as they work to create their own brand at retail.”
The deal, which is subject to approval by regulatory bodies and shareholders, is expected to close in the second half of 2017, the two companies said in a joint release.
