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Amazon to buy Whole Foods Market, moving onto Main Street

Sunday, June 18, 2017

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NEW YORK, United States (AFP) — Amazon is once again shaking up the retail sector, with the announcement Friday it will acquire upscale US grocer Whole Foods Market, known for its pricey organic options, in a deal that underscores the online giant's growing influence in the US economy.

The purchase in one fell swoop gives Amazon, which until now has operated almost entirely on the internet, a big presence in the brick-and-mortar world on Main Street, with more than 450 stores in the US, Canada and Britain.

In the US$13.7 billion, all-cash deal, Amazon will buy the Texas-based champion of organic and specialty food for US$42 a share. Whole Foods' shares traded in the mid-US$30 range for May and early June.

The announcement had immediate and punishing consequences on Wall Street for retailers, such as Wal-Mart Stores, that sell groceries and are expected to face even tougher competition with Amazon now much more active in the space.

But shares of Whole Foods shot up 27.3 per cent to US$42.07, while Amazon jumped three per cent to US$992.91, a gain of US$13.8 billion in market capitalisation, slightly more than the deal itself.

Whole Foods will continue to operate stores under its brand and will continue to be led by co-founder and chief executive John Mackey, the companies said. Mackey helped grow the company from a tiny health-conscious grocer in Texas into a giant in upscale chain in all but eight US states.

“This partnership presents an opportunity to maximise 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,” Mackey said.

MISSION-DRIVEN ENTERPRISE

In May, under pressure from Jana Partners, Whole Foods replaced five board members and its chief financial officer. The hedge fund said the company was undervalued and needed to overhaul its operations and consider “strategic alternatives”, code for a sale.

Mackey, who has viewed Whole Foods as a “mission-driven” company aimed at improving American food, castigated Jana as an example of craven capitalism looking for a quick profit.

“They're greedy bastards, and they're putting a bunch of propaganda out there, trying to destroy my reputation and the reputation of Whole Foods,” Mackey told Texas Monthly in a profile published this week.”

In an e-mail to customers titled “exciting news”, Whole Foods vowed to keep quality high.

“No artificial flavours, colours, preservatives, sweeteners or hydrogenated fats will ever be in any of the food we sell. Meat will still come from animals raised with no-added growth hormones, ever,” the company said.

The deal is the latest big move for Amazon and its charismatic chief executive Jeff Bezos, who grew Amazon from a small online bookseller in the 1990s into a global retail behemoth that delivers a wide range of goods and creates award-winning entertainment broadcasts.

“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” Bezos said, adding, “they're doing an amazing job and we want that to continue.”

As Amazon has grown and Bezos has amassed some US$72 billion in wealth, he has spoken more frequently of his public mission, acquiring the Washington Post and investing heavily in the newspaper.

On Thursday, Bezos took to Twitter to request ideas on philanthropy “to be helping people in the here and now”, a posting that generated some 18,000 responses.

SEISMIC EVENT

Analysts viewed the deal with Whole Foods as a seismic event for the sector.

“The retail sector is used to change, but every so often an event occurs that shakes the industry to its core,” said Neil Saunders, managing director of research firm GlobalData Retail. “Amazon's acquisition of Whole Foods is one of those.”

He said the deal allows Amazon to quickly build up its business in groceries through buying a well-regarded brand. But “for other grocers, the deal is potentially terrifying”.

“Amazon has moved squarely onto the turf of traditional supermarkets and poses a much more significant threat.”

But it also creates concerns about competition in the market.

Barry C Lynn, competition policy expert at the New America think tank in Washington, warned of “America's Amazon Problem” that has seen one company dominate “every corner of online commerce”.

This latest deal “would worsen the already severe damage that Amazon is doing to America's competitive, open market system,” Lynn said.

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.

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