Amazon's increasingly overt and aggressive push into the grocery retail market has officially gone into full-blown, alarm-blaring fever-pitch mode today as its plans to acquire the brick-and-mortar chain Whole Foods was publicly announced.
Amazon is also something of a unique threat to many retailers because it doesn't mind losing money for long stretches. Still, Wall Street was taken aback by the news as it's the biggest mergers and acquisitions deal ever for a grocery retailer, and Amazon's biggest acquisition in its history. But if customers know that what they are getting is the same as what they'd get at the local store, they are more likely to try it out.
Amazon (AMZN) has been dabbling in the grocery business with Amazon Fresh, a delivery service available in about 20 cities for a $14.99 monthly subscription. After a back and forth with Whole Foods and then Jana over the Board of Directors leadership, it seems a suitor may finally be at hand. Instead of having a handful of huge warehouses that serve the entire nation, Instacart works with grocery stores that are located a few miles from each customer's house. It had no cashiers and no checkout lines. No register. Get in, and get out.
The Canadian grocers have seemingly had bigger fish to fry in recent quarters, as food deflation stemming from intense competition takes centre stage for the trio, rendering Whole Foods and its ilk a back-burner issue at best. The tech now needs some work, though, because early tests of the concept store were rife with problems. In the end, Amazon just wants to make it easier for people to buy things from Amazon stores. But the online retailer has been challenged by logistical issues and shoppers' reluctance to buy food sight unseen, Bloomberg reported.
In the statement, executives for both companies assured customers that the acquisition will preserve Whole Foods Market as its own distinct brand. "They will not let you compete". It also gets it crucial real estate it needs to accelerate its delivery operations.
And AmazonFresh hasn't been Amazon's only experiment in the grocery business. "Amazon doesn't have a particular emphasis on the luxury consumer, and maybe they want that exposure".
Which calls to mind Bentonville, Ark. -based Walmart, which just graduated its first class from its Bonney Lake career academy this week, one of three such sites in Amazon's home state. The point of all these devices being that they will sync your shopping lists, and ultimately help you make those purchases through Amazon.
Mastering the grocery business will pay larger dividends for Amazon down the road, because in the future the entire retail sector is going to look more like the grocery business.
However, S&P placed Amazon on credit watch with negative implications on expectations the company will increase debt to finance the takeover. It's about keeping people locked in a purchasing loop. Buying a nationally known grocer gives Amazon a way to catch up. But when Amazon invests more than $13 billion in an effort to revolutionize a market segment and destroy its competitors, there is every reason to believe it will be able to achieve exactly that.