Amazon and Whole Foods Deal Signals Industry Shake-up

Amazon’s $13.7 billion decision to buy Whole Foods left traditional brick-and-mortar stores reeling over the past few days, with share prices tumbling significantly on Friday in the aftermath of the announcement. While some stocks have slowly started to tick back up, several large banks and analytical firms have downgraded their recommendations for businesses like Costco and Target from “buy” to “hold.”

The new recommendations came from a lack of confidence in the brick-and-mortar grocers’ ability to maintain a competitive edge in their respective niches now that the online giant is attempting to make a splash in the conventional grocery market. While Amazon continues expanding its operation to become an “everything store” according to CEO Jeff Bezos, there are worries from analysts, activists, consumers and policymakers alike that could play into some of the apparent skepticism surrounding the deal.

The deal, which took place just six weeks after Bezos met with Whole Foods CEO John Mackey, rattled many of the upscale grocer’s investors, primarily because it appeared as though the deal was struck very hastily, especially given recent upward speculative pressure on its share price. While Mackey was exceptionally pleased about the deal, lauding it as a “marriage,” investors in the company claim that they could have gotten more than what Amazon offered, and the potential for a bidding war for the organic chain could arise. Aside from potentially dissatisfied investors, several policymakers and advocates have worried that the merger could signify the beginning of a monopoly.

While some venture capitalists have asserted that this is just the beginning, lawmakers like U.S. Rep. Ro Khanna (D-CA) stated that the Department of Justice should review the deal to determine if it would significantly undermine competition under antitrust laws.

While the scale of the takeover has caused ripples in policymaking circles, it is important to remember that, even after the deal, Amazon still would only account for 3.5 percent of spending in the grocery industry. While this would make it the fifth-largest grocer, Amazon’s primary source of revenue has been its extremely efficient E-commerce platform.

As Amazon branches into new, less-familiar territory, giants like Walmart are making plays against Amazon’s bread-and-butter digital marketplace. Walmart’s recent acquisition of popular retailer Jet.com has shown that, as online and electronic markets continue to grow, more traditional firms will have to adapt to keep their potentially dwindling market share. As a recent Census Bureau report showed, retail E-commerce shows no sign of slowing down and firms may find themselves in trouble if they do not adapt to the changing digital landscape. The consumer-level impact of this deal, if it goes through, is unclear, but the impact that it has had on how big players in the conduct themselves is already evident.

Read More:

“Whole Foods’ CEO described his deal with Amazon as a ‘dream come true,’ but investors want more” (Alex Morrell, BusinessInsider)

“Target, Wal-Mart endure the aftermath of Amazon’s Whole Foods buy; stocks still falling” (Lauren Thomas, CNBC)

“Amazon’s Big Deal for Whole Foods Is So Alarming That the Government May Not Let It Happen” (Lindsay Rittenhouse, TheStreet)

“Estimated Quarterly U.S. Retail E-commerce Sales as a Percent of Total Quarterly Retail Sales: 1st Quarter 2007 – 1st Quarter 2017” (U.S. Census Department)

 

Image Source: Artist, Stock Image, License Summary.

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