Talk about genius. Let's hope that Amazon also figures out a way, like they do with everything else, to make Whole Foods groceries a little cheaper.
Analyst Chris Low at FTN Financial joined us to talk about the state of the supermarket industry, what the sale could mean for your shopping experience, and whether Amazon has what it takes to turn Whole Foods around. After the deal was announced Friday, it raised its target price for Whole Foods to $45 from $40. Whole Foods has struggled to find its own footing here.
While we don't exactly know what Amazon's plan for the grocery chain will be, know that there probably is a plan in place, Low added. Were Amazon to pull out in favor of its own delivery solution it could raise costs for Instacart and, potentially, for those brick-and-mortar grocers who have trusted their e-commerce strategy to it, including Publix, HEB, Costco, Smart & Final and others.
Armed with Amazon's fearsome analytics, the organic supermarket chain may also be able to respond more quickly to changing market trends.
Whole Foods has been long plagued by its "Whole Paycheck" image of being very expensive. Amazon desperately wants a bigger grocery presence to boost its already growing online grocery sales, and this gives the company a bigger beachhead. The investment firm Jana Partners said in April that it had built up an ownership stake in Whole Foods because it saw ways to address its "chronic underperformance for shareholders".
Amazon's market share of the USA retail sector previous year was estimated at 34 percent, while Walmart came second with 5 percent, according to Needham & Company's research in April.
An Amazon delivery locker system, which routes Amazon shipments to a publicly-accessible locale, in New York City. According to the source, Whole Foods reaffirmed its partnership with Instacart on Friday.
Hrach Simonian, an investor in Instacart and general partner at Canaan Partners, stressed that Instacart has many other partners. Supervalu, a smaller grocery chain, lost 17% of its value.
That could lead to a scenario that department stores are familiar with: After overexpanding their retail stores in the face of a shift in revenue from offline to online, cutbacks, store closures, and share price declines become inevitable. So while most of this merger is about grocery, beauty also provides an upside. So were Walmart and Target, which made big moves into groceries in recent years and now depend on food for a huge chunk of their sales.
WalMart bought Jet, an ecommerce site trying to compete with Amazon, for $3.3 billion in 2016. It announced Friday that it's buying online men's clothing retailer Bonobos for US$310 million in cash, following a string of online acquisitions including ModCloth and Moosejaw.