The U.S. grocery industry has annual sales between $700 and $800 billion.
Under the terms of the acquisition, John Mackey will remain CEO of Whole Foods Market, and the company’s headquarters will remain in Austin, Texas.
For years now, the name Whole Foods has been synonymous with high-margin health food. And Amazon’s latest acquisition will give it over 460 stores as test beds to learn how to compete with Wal-Mart’s 4,700 stores with a large grocery offering. And in a nod to the popularity of delivery companies like Blue Apron, Kroger and Whole Foods have been testing meal kits as well.
Reuters reported that Amazon’s purchase of Whole Foods also brings disruption to the $700 billion U.S. grocery sector, which is a traditional area of retailing that stands on the precipice of a ferocious price war.
Pachter said Amazon was likely to increase spending to build its online grocery business over the next several years, so the acquisition would add only slightly to earnings while boosting revenue significantly. When they take something off the shelf and put it in their cart, it registers in their account.
Read: Is Amazon serious about getting into pharmacy?
Completion of the transaction is subject to approval by Whole Foods Market’s shareholders, regulatory approvals and other customary closing conditions.
Amazon would also look to change Whole Foods’ inventory, introducing its own private-label products to replace items deemed too expensive to have mass appeal, the person with knowledge of the matter said. But a few other things might change eventually, as Amazon seeks to change its new spouse’s reputation for pricey products.
Some see a robust case for betting on higher Whole Foods prices.
It is doubtful that beer distribution was the driving force behind the acquisition of Whole Foods, but it will have a material impact on the industry and the relationship between the three tiers.
Parikh added that Amazon’s offer appears to be “undervaluing the company’s prospects and the powerful brand” and that Whole Foods could do better.
However, this deal with Whole Foods marks Amazon laying down the gauntlet and proving just how serious it is about its grocery business.