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Here’s what you need to know about Amazon and Whole Foods

BY Marianne Wilson

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.”

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Market Recap: RISI Crow’s Construction Materials Cost Index

BY HBSDEALER Staff

A price index of lumber and panels used in actual construction for June 16, 2017.

Western – regional species perimeter foundation; Southern – regional species slab construction.

Crow's Market Recap — A condensed recap of the market conditions for the major North American softwood lumber and panel products as reported in Crow's Weekly Market Report.

Lumber: After finding firmer footing the week prior, SPF mills in both eastern and western Canada entered this week seeking moderately higher prices. Sensing no downside risk in the near-term because of cyclical low pricing, distributors contributed significantly to steady sales activity. For the most part, Southern Pine mills managed to sell much of their production at discounts ranging from $2-10. Blocks, however, sold with significantly deeper cuts. Those excess volumes often consisted of straight lengths. Traders reported a busier tone to the Coastal species market. Both the supplies available and pricing indicated greater market stability. Mills managed to clean up some of their excesses, which firmed up prices. In Inland lumber, the give and take of trading in recent weeks has led to discounting in Hem-Fir Std&Btr/#2&Btr lumber, and Fir-Larch saw some slight softening in a couple of items this session. Momentum in the stud market generated some higher prices, as buyers continued to fill needs at a solid pace. After selling off excesses the week prior, mills managed to bolster order files and quote higher levels. In Industrial lumber, price disparities between Radiata Pine and Ponderosa have reached levels that have virtually locked in both species. Ponderosa Pine 5/4 Mldg&Btr edged up to $1200 in recent trading, but the gains in all Ponderosa industrials have been very modest in recent weeks. Ponderosa Pine 4/4 Selects and Commons are currently riding a steady wave of demand, which is consistent but not aggressive. Eastern White Pine prices show little, if any, changes in recent activity. Western Red Cedar sales activity remained pedestrian at the mill level, although some pickup in sales after a month or so of slower transactions was reported by a few mills. Approaching the market more cautiously, yards purchased hand-to-mouth when it was necessary to fill inventory holes.

Panels: This week, OSB activity was subdued but firm in the US, while it was widely brisk in Canada. Having the construction season in full-swing and thin inventories in the field keeps panels moving through the pipeline and pricing stable to up. The pace of Southern Pine plywood sales slowed from the prior week, although a few producers did report strong sales Monday. From at least Tuesday, mills tended to fall back on order files which extended as far out as July 3. Western Fir plywood mills experienced “a good week” of sales. Activity overall did not match the prior week, but it was strong enough to push order files firmly into the weeks of June 26 and July 3 and propel some prices higher. The run which lurched ahead in Canadian plywood last week is still going, with pricing at levels not seen in years. Pricing shot up past the mythical $500 mark midweek, without causing even a pause in buying. A number of particleboard and MDF producers reported little change in their sales activity levels. A few western producers noted that demand for both items subsided a bit.

For more on RISI, click here.

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A Ground Floor to creative transformation

BY HBSDealer Staff

ServiceMaster has some ideas for the future of the in-home service experience. And if not, at least they have a place where they can think about these ideas.

The company opened a new innovation and accelerator space called Ground Floor at ServiceMaster. It is the first area to open in One ServiceMaster Center, ServiceMaster’s downtown Memphis headquarters relocation project.

“ServiceMaster is using technology and the digital marketplace to change the way people buy and use essential services to keep their homes and businesses running smoothly,” said Rob Gillette, chief executive officer at ServiceMaster. “It will differentiate us from the competition and change the way our company goes to market and serves customers – and we think Ground Floor is going to help revolutionize home services.”

What kind of ideas can one expect to be hatched? We put that question to a spokesman for the company, he pointed to “improvements to the customer experience. How can they more easily find us, buy from us, and receive service from us?”

The 20,000-square-foot collaborative workspace will serve as a hub for the company to showcase its businesses and transform the residential and commercial services industry through digital-mobile technology. With rentable co-working space, Ground Floor also will be an accelerator for local entrepreneurs and IT developers to create an innovation engine that can attract high-tech talent and investment to Memphis.

Ground Floor is part of ServiceMaster’s new global headquarters currently under construction in downtown Memphis. The company is renovating the former Peabody Place Mall into office space for 1,200 people. One ServiceMaster Center is expected to open in the first quarter of 2018.

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