Amazon Announces That It Will Be Buying Grocery Chain, Whole Foods, For $13.7 Billion

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The online retail giant announced Friday that it is buying grocery chain Whole Foods for $13.7 billion. The deal values Whole Foods at $42 a share, 27% higher than where the stock was trading Thursday.

Whole Foods stores will continue operating under that name as a separate unit of the company. Whole Foods CEO John Mackey will stay on charge of Whole Foods.

The deal shows Amazon’s interest in moving into the business of groceries. The company has its own delivery service, AmazonFresh, and is experimenting with a “click and collect” model, offering customers to buy groceries online, then pick them up in person.

Impact of amazon and Walmart on supermarket business

The supermarket business has been hit hard by increased competition from Amazon itself, as well as Walmart.

Grocery giant Kroger said Thursday that its profits for the year would be lower than expected, sending its stock plunging nearly twenty percent. Kroger’s stock declined thirteen percent further on Friday after the Amazon-Whole Foods detail was announced.

Shares of other retailers with a big presence in groceries, such as Target, Costco, SuperValue and Sprouts, declined as well. Walmart was down five percent, despite it’s men’s apparel company ‘Bonobos’ deal.

Amazon’s deal demonstrates the financial might of Jeff Bezos-led company, whose market value is greater than that of the 12 largest traditional general retailers combined.

Whole Foods 2015 crisis

Whole Foods, founded in 1978, has about eighty seven thousand employees and more than 460 stores together in the U.S. Canada and the U.K.

Due to high prices of Whole Foods, the company was accused of overcharging customers by regulators in New York City in 2015 and that had a huge negative impact on Whole Foods. Sales declined for several quarters, and the company became the butt of jokes by late-night comedians.

Sales growth at Whole Foods has slowed and profits were significantly reduced. That may be one reason why Whole Foods was willing to sell to Amazon.

It will be interesting to see if Amazon ‘which has a reputation for keeping prices low’ will turn Whole Foods into more of a bargain retailer as well. Also Whole Foods stock did not move much higher than $42 on Friday ‘the price that Amazon agreed to pay’. That could be a sign that Wall Street does not expect a bidding war for the company.

So it looks like Bezos bought as well the bad PR baggage that comes with Whole Foods.

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