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Amazon stumps up nearly $US14B for Whole Foods Market

19 June 2017

Yesterday, e-commerce giant Amazon.com announced they are to acquire Texas based retail grocery store chain Whole Foods Market at US$42 per share.

The news might come as a shock to some, but Whole Foods investor Jana Partners suggested the acquisition earlier this year. "If shoppers are going to allow a company, a retailer, to pick their meat, their produce and their seafood, Whole Foods is probably at the top of the list of retailers with the best reputation across the country".

When Wal-Mart Stores Inc bought online retailer Jet.com for $3 billion last year, it marked a crucial moment - the world's largest brick-and-mortar retailer, after years of ceding e-commerce leadership to arch rival Amazon, meant to compete.

Amazon stocks rose 2.4 percent to close at $987.71. In connection with the deal, Amazon filed a commitment letter from lenders with the SEC, indicating that it will take on $13.7 billion in debt to fund the acquisition of the company Amazon had previously referred to under the code name "Walnut", in order to keep the deal under wraps.

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Whole Foods Market will still run physical stores under its own brand so the deal seems more about bringing Amazon's scale and expertise - especially in analytics - to bare.

Amazon is expected to thoroughly transform Whole Foods Stores, expanding them beyond being grocery stores to integrate them into their broader operations, perhaps including technology retail, and online-purchase ability.

Whole Foods' gross margins out pace Kroger, target and Wal-mart rather handily. Hetu said Amazon could make pertinent offers to attract shoppers of one but not the other, or get shoppers of both to buy more. Kroger, one of the world's biggest supermarket chains, faced a $3 billion fall in market value.

Feinberg also says that Amazon has a test store called Amazon Go in Seattle that is displaying how Amazon does groceries. While Amazon has been building more and more delivery hubs, the Whole Foods deal gives it 456 stores that it can instantly fit into that network, said Josh Olson, analyst with Edward Jones.

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Amazon and Whole Foods take diametrically opposite approaches to pricing. The company is slowly building a fleet of outlets, cementing its supermarket dreams.

Amazon spokesman Drew Herdener said plans do not include reducing jobs as the result of the deal and that the company does not plan to automate Whole Foods cashiers jobs with Amazon Go technology.

Amazon's philosophy has been hard on many of its retail competitors, who have closed their doors in part because of online competition. However, Whole Foods has only 431 stores against an estimated national total of over 38,441 grocery store locations.

Also, consider the purchase of Whole Foods from another perspective: kingslaying. Whole Foods already has a lot of in-store dining and lots of prepared foods.

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