Whole Food shares keep rising, leading to bidding war speculation

Tuesday, 20 Jun, 2017

A Moody's analyst described the Amazon-Whole Foods deal as a "transformative transaction, not just for food retail, but for retail in general".

Overall, the transaction is the second-largest US grocery deal on record after Cerberus Capital Management, CVS Health Corp and SuperValue bought out Albertsons in 2006 for $17.4 billion.

It's also important to note that even if the deal goes through, the Amazon and Whole Foods combo will represent about 3.5% of grocery spending in the U.S. So it's not yet as groundbreaking as it sounds. Amazon might also be partial to companies whose retail footprints can easily double as Amazon order pickup locations and/or showrooms for the company's products.

Oppenheimer's Jason Helfstein says: "Our analysis assumes no incremental investment by Amazon, or potential revenue/ cost synergy; however, we believe it's likely Amazon will invest at some level to: 1) increase store efficiency (especially on labor cost); and 2) convert stores to work as online food distribution hubs".

Increasingly, Lipman added, Amazon's private-label initiatives are giving it the ability to either participate in or actually dominate various retailing categories. Whole Foods has seen its sales slump and recently announced a board shake-up and cost-cutting plan amid pressure from activist investor Jana Partners.

The merger is expected to be completed in the latter half of the current year after receipt of approval from Whole Foods Market's shareholders, regulatory approvals and meeting of certain customary conditions.

Cheung said Amazon Go is likely to influence Whole Foods' future store design.

"Amazon has had grocery ambitions for a long time", says Bloomberg food reporter Craig Giammona. Now that it's owned by bargain-friendly Amazon, perhaps the prices at Whole Foods will get a reality check.

"The possible effects on Whole Foods alone are interesting to contemplate", said Maute, a nationally known expert on private label products.

Some industry observers say Amazon will find it hard to use Whole Foods to pull away Wal-Mart shoppers because the two stores appeal to different customers. The stores could teach cooking skills, hold classes and educate about food.

According to Kantar Retail ShopperScape, monthly Amazon shoppers and monthly Whole Foods shoppers both tend to be younger, more affluent, and urban.

"Amazon and Whole Foods working together will give Whole Foods richer data and insight, opening opportunities for unique innovation, new ways to market to consumers and better insights when building brands". Numerous traditional retailers have experienced a significant decline in their business due to this phenomenon.

While Wally's been trying to catch up in the the digital department by acquiring hip online clothing brands, Amazon is coming in hot from the other side of the fence - growing from an online model to having a physical retail presence across the country.

Amazon had looked at Whole Foods past year but initially decided not to make an offer. As a string of recent moves show, Amazon has made growing sales to lower-income consumers a priority.

Does Amazon stock depend on Whole Foods? As consumers are shifting towards online shopping channels, Walmart invested heavily in its e-commerce platform and expanded its online grocery offerings to more than 700 stores.