In a blockbuster deal that adds even more heat to the already competitive supermarket industry, online giant Amazon is acquiring Whole Foods Market in an all-cash transaction valued at $13.7 billion, or $42 a share.
The deal, which is Amazon's largest transaction to date, benefits both companies, said analyst Neil Saunders, managing director of GlobalData Retail. But he sees it as potentially "terrifying" to other supermarket retailers.
"Although Amazon has been a looming threat to the grocery industry, the shadow it has cast has been pale and distant," Saunders said. "Today that changed: Amazon has moved squarely onto the turf of traditional supermarkets and poses a much more significant threat. The only mitigation is that the more niche appeal of Whole Foods will, at least for the time being, limit the threat to other players."
John Mackey, co-founder and CEO of Whole Foods, will remain chief executive of the grocer after the deal closes. Stores will continue to operate under the Whole Foods banner, and the company's headquarters will remain in Austin. The transaction is expected to close during the second half of 2017.
“This partnership presents an opportunity to maximize 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,” stated Mackey.
Analyst Saunders noted that the purchase fulfills Amazon's ambition to be a serious player in the grocery market, giving it an established business that it can transform through its technology and supply chain expertise along with a well-known and well-regarded brand that can, ultimately, be sold across Amazon platforms.
"For Whole Foods, the deal will come as a relief," Saunders said. "The one well-regarded grocery chain has been under pressure for a couple of years and has struggled with sales, margins, and profits. Amazon is effectively a white-knight that has come to its rescue."
Of course, it's not just the grocery store industry that stands to be affected. Many experts agreed that brick-and-mortar will be a significant area of expansion for Amazon going forward.
“The ramifications for all of retail are seismic – not just retailers that sell grocery, but for everyone," said Chuck Grom, analyst, Gordon Haskett. "Also, we wonder if purchasing the high-end grocer represents part one of a two-part act on Amazon’s part to expand its grocery arm. Said differently, the acquisition gives CEO Jeff Bezos a weapon to attract a customer he largely already caters to (the majority of PRIME members make more than $100K per year). But if the goal is to fully compete against Wal-Mart (and the low-end), then could Dollar General be next on Amazon’s buying list to go after an arguably larger part of the U.S. population? Stay tuned.”