Amazon acquired Whole Foods for $US13.7 billion on Friday. The move should terrify more traditional brick-and-mortar grocery retailers that are fighting to dominate the online grocery business.
Shares of Kroger, Target, Costco, and Walmart all plummeted after the news was announced, with Kroger’s shares hitting a three-year low.
These companies have made major investments in online grocery in recent years, debuting services like click-and-collect and online delivery.
Amazon has begun testing some brick-and-mortar locations of its own, including Amazon Fresh grocery stores. With the acquisition of Whole Foods, the e-commerce giant now controls both an established brick-and-mortar grocery system and the infrastructure to build to successfully execute online sales — an area where most grocery chains are lagging behind.
Up to this point, one of traditional retailers’ biggest advantages over Amazon have been their established base of brick-and-mortar stores.
“By giving customers the flexibility to choose when, where, and how to shop, Walmart is able to better serve customers in a way pure online players cannot,” Jefferies wrote in a note to investors, summarizing the company’s president and CEO David Cheesewright’s argument at a recent event. “Food and consumables are great traffic drivers and Walmart’s vast distribution and store network gives it a leg up in serving the customer.”
With more than 460 stores in the United States, Canada, and the United Kingdom, Whole Foods is not nearly as large as Walmart’s 4,692 locations. However, most of Whole Foods stores are in major US cities, providing crucial brick-and-mortar grocery centres for Amazon in these key markets.