Amazon buying Whole Foods

[golden eagle]

Hmmm.

http://www.wsbtv.com/news/trending-now/amazon-to-buy-whole-foods-reports/534279713

[noelbotevera]

As with all large mergers, I have this urging feeling this could be part of a decline. I mean, look at when large businesses try to buy each other out - Ames went bankrupt from purchasing Hills (when Ames actually recovered from their previous bankruptcy), Sears went into a steep downhill slope from K-Mart, and AOL purchased Time Warner...and then it all collapsed.

[JJBers]

As with all large mergers, I have this urging feeling this could be part of a decline. I mean, look at when large businesses try to buy each other out - Ames went bankrupt from purchasing Hills (when Ames actually recovered from their previous bankruptcy), Sears went into a steep downhill slope from K-Mart, and AOL purchased Time Warner...and then it all collapsed.

Well, Sears would like Amazon to go bankrupt anyways

[formulanone]

As with all large mergers, I have this urging feeling this could be part of a decline. I mean, look at when large businesses try to buy each other out - Ames went bankrupt from purchasing Hills (when Ames actually recovered from their previous bankruptcy), Sears went into a steep downhill slope from K-Mart, and AOL purchased Time Warner...and then it all collapsed.

You're thinking of examples where there was already weakness your choice(s) of brands.

Amazon and Whole Foods are quite strong and recognizable name brands, although it took Amazon years to get to its consistently profitable state.

[Brandon]

Hmmm.

http://www.wsbtv.com/news/trending-now/amazon-to-buy-whole-foods-reports/534279713

It's not their core business.  Odds are, either Amazon's going to get hurt from this, Whole Foods will be less from the merger, or both.  An analogy, Kmart bought a lot of businesses in the 1980s and 1990s: Borders, OfficeMax, Builders Square, PACE, and Sports Authority.  Eventually they were divested, with only OfficeMax still around (albeit merged with Office Depot).  In doing so, they ignored their core business and let Walmart sneak up on them.

As with all large mergers, I have this urging feeling this could be part of a decline. I mean, look at when large businesses try to buy each other out - Ames went bankrupt from purchasing Hills (when Ames actually recovered from their previous bankruptcy).

Which was when they bought Zayre and managed to overextend themselves.  Ames didn't learn from the Zayre experience when buying Hills.

[Brandon]

As with all large mergers, I have this urging feeling this could be part of a decline. I mean, look at when large businesses try to buy each other out - Ames went bankrupt from purchasing Hills (when Ames actually recovered from their previous bankruptcy), Sears went into a steep downhill slope from K-Mart, and AOL purchased Time Warner...and then it all collapsed.

You're thinking of examples where there was already weakness your choice(s) of brands.

Amazon and Whole Foods are quite strong and recognizable name brands, although it took Amazon years to get to its consistently profitable state.

However, Whole Foods hasn't been doing quite so well as of late.

[formulanone]

As with all large mergers, I have this urging feeling this could be part of a decline. I mean, look at when large businesses try to buy each other out - Ames went bankrupt from purchasing Hills (when Ames actually recovered from their previous bankruptcy), Sears went into a steep downhill slope from K-Mart, and AOL purchased Time Warner...and then it all collapsed.

You're thinking of examples where there was already weakness your choice(s) of brands.

Amazon and Whole Foods are quite strong and recognizable name brands, although it took Amazon years to get to its consistently profitable state.

However, Whole Foods hasn't been doing quite so well as of late.

Not bad, though there's more competition from local markets and supermarket chains.

[briantroutman]

My only somewhat under-informed guess is this.

As a retailer, Amazon sees two of its significant weaknesses as: 1.) despite various efforts like AmazonFresh, Amazon has been something of an also-ran in the fresh food/grocery delivery business, and 2.) Amazon lacks a national physical presence. The acquisition of Whole Foods could address both.

I think the fear is that if Amazon loses a potential grocery customer to Walmart or a supermarket chain, it may potentially lose that customer for other transactions, too. Notice all of the efforts Amazon has made to keep customers within its walled garden as long as possible: Amazon Prime, Subscribe and Save, Dash buttons, the Amazon Echo (Alexa), etc.

And if an Amazon customer can't get a Dash button for fresh asparagus–or can't ask Alexa to deliver a gallon of milk–the customer might set up a Instacart account at his local Wegmans. And Wegmans can also auto-deliver the oversized packages of Tide, Cascade, and Crest he currently gets from Amazon. So why buy them from Amazon?

[SP Cook]

Good analysis, briantroutman. 

Personally I'm not a Whole Foods kind of person, but I can see the marketing niche.  Of course, the company falls far short of giving Amazon a national footprint, as it is only in upper middle class areas with lots of hipster young people.

[US71]

However, Whole Foods hasn't been doing quite so well as of late.

One of the most frequent complaints is their prices seem  too high.

[Big John]

However, Whole Foods hasn't been doing quite so well as of late.

One of the most frequent complaints is their prices seem  too high.

Hence their unofficial nickname of "Whole Paycheck".

[1995hoo]

Seen via someone else's retweet earlier today:

Jeff Lewis @ChicagoPhotoSho

Bezos: "Alexa, buy me something from Whole Foods"

Alexa: "Buying Whole Foods"

Bezos: Shit

Good analysis, briantroutman. 

Personally I'm not a Whole Foods kind of person, but I can see the marketing niche.  Of course, the company falls far short of giving Amazon a national footprint, as it is only in upper middle class areas with lots of hipster young people.

[Brandon]

^^ Yeah, along with Shitty Wok..er..City Wok.

[Bruce]

Amazon's trying to leverage Whole Foods in two ways: brick-and-mortar locations; and a decently sized national food distribution network (which will help with Fresh home-deliveries).

Amazon has managed to hide its profits for years, so it's not a good mark of the company's success. They managed to grow like a weed here in Seattle during their "worst" years.

[US71]

Amazon's trying to leverage Whole Foods in two ways: brick-and-mortar locations; and a decently sized national food distribution network (which will help with Fresh home-deliveries).

Amazon has managed to hide its profits for years, so it's not a good mark of the company's success. They managed to grow like a weed here in Seattle during their "worst" years.

Stock pickers are predicting Wal-Mart may try to outbid Amazon. They might have to close a few more stores, though   (Waldron, AR and Perry, OK were announced this week for closure)

[jakeroot]

Hmmm.

http://www.wsbtv.com/news/trending-now/amazon-to-buy-whole-foods-reports/534279713

It's not their core business.  Odds are, either Amazon's going to get hurt from this, Whole Foods will be less from the merger, or both.

Amazon has pretty much entered every part of the market at this point. I don't know if they have a "core business" anymore.

Amazon actually runs a small grocery store here in Seattle (called Amazon Go). I could see this Whole Foods merger as a way of rolling out their "no checkout stand" setup (which is how the Seattle store runs).

[sparker]

Here in San Jose Whole Foods has largely been eclipsed by Sprouts as the "high quality" food outlet of choice, primarily due to the latter's much more competitive pricing structure and the extensive use of in-house branding (a concept pioneered by Trader Joe's).  And, like TJ's, their house brand stuff generally doesn't suck!  I think Amazon will have their hands full just maintaining the "regulars" who have become inured to shopping at Whole Foods.  Funny thing is, the stock prices of most mainstream grocery competitors (Safeway, Kroger, etc.) dropped significantly upon the Amazon announcement -- as if to "precondition" the acquisition price of those chains, should Google or some other cash-rich entity wish to similarly expand their horizons!     

[DandyDan]

I saw an article on my Facebook feed today about how buying Whole Foods would give Amazon a way to get into the pharmaceutical market. I

[Brandon]

Here in San Jose Whole Foods has largely been eclipsed by Sprouts as the "high quality" food outlet of choice, primarily due to the latter's much more competitive pricing structure and the extensive use of in-house branding (a concept pioneered by Trader Joe's).  And, like TJ's, their house brand stuff generally doesn't suck!  I think Amazon will have their hands full just maintaining the "regulars" who have become inured to shopping at Whole Foods.  Funny thing is, the stock prices of most mainstream grocery competitors (Safeway, Kroger, etc.) dropped significantly upon the Amazon announcement -- as if to "precondition" the acquisition price of those chains, should Google or some other cash-rich entity wish to similarly expand their horizons!     

I've ceased taking any stock in what the hell a stock price is.  It seems to vary as to how popular a specific company is at a certain time.  Amazon, like Tesla, is a Wall Street darling.  According to them, they can do no wrong (even though they can and have).  My suspicion is that this will be a major drain on Amazon.  As for Tesla, I can't figure out why they're so damned popular.  They haven't made a profit ever, and Musk can't meet a deadline.  GM beat them with a better, cheaper vehicle, yet Wall Street loves Musk and Tesla.

[sparker]

Here in San Jose Whole Foods has largely been eclipsed by Sprouts as the "high quality" food outlet of choice, primarily due to the latter's much more competitive pricing structure and the extensive use of in-house branding (a concept pioneered by Trader Joe's).  And, like TJ's, their house brand stuff generally doesn't suck!  I think Amazon will have their hands full just maintaining the "regulars" who have become inured to shopping at Whole Foods.  Funny thing is, the stock prices of most mainstream grocery competitors (Safeway, Kroger, etc.) dropped significantly upon the Amazon announcement -- as if to "precondition" the acquisition price of those chains, should Google or some other cash-rich entity wish to similarly expand their horizons!     

I've ceased taking any stock in what the hell a stock price is.  It seems to vary as to how popular a specific company is at a certain time.  Amazon, like Tesla, is a Wall Street darling.  According to them, they can do no wrong (even though they can and have).  My suspicion is that this will be a major drain on Amazon.  As for Tesla, I can't figure out why they're so damned popular.  They haven't made a profit ever, and Musk can't meet a deadline.  GM beat them with a better, cheaper vehicle, yet Wall Street loves Musk and Tesla.

At this point in time a large number of stock prices -- particularly in regards to publicly visible firms -- seem to fluctuate according to the perception of the firm as an acquisition target.  When a particular "round" of acquisitions starts, other firms in the field often find their stock price slipping somewhat; contributing to that is the release of stock held by hedge funds and other institutional investors.  The "end game" is to make the stock price more attractive for a "raid" on that stock by a potential corporate buyer; then the stocks are repurchased by the investors (in small batches so as not to cause a spike) when an entity (other firm or overseas holding company) indicates a definitive attempt to acquire the target company; profits are realized when the purchasing firm keeps raising their per-share offer to get reluctant shareholders on board.  Not as glamorous or potentially (short-term) profitable as IPO's (although even those have been muted in their impact as of late), but sales/acquisitions of companies can provide, if enough shares are involved, a tidy measure of profit for the trader. 

I remember the days of runaway IPO's and even acquisitions in the mid-to-late '90's, when one could double an investment in a matter of hours -- the age of the "day trader".  It's possible but not probable that an individual or small group can, even today, create a steady revenue stream from market transactions -- but these days a very substantial capital source is required due to the sheer numbers involved. 

[Scott5114]

Amazon's trying to leverage Whole Foods in two ways: brick-and-mortar locations; and a decently sized national food distribution network (which will help with Fresh home-deliveries).

I think this makes the most sense. Amazon isn't necessarily interested in Whole Foods, they're interested in the infrastructure that keeps Whole Foods supplied. The B&M stores are just a nice bonus.

[english si]

Amazon has pretty much entered every part of the market at this point. I don't know if they have a "core business" anymore.

I'd imagine web hosting services - a part of the business that the general public don't have much direct contact with (lots of government agencies use AWS), but which is a consistent and reliable income. The margins are also going to be higher than the shop-side of things, where there's payments to third party delivery services, the need for large warehouses, etc.

That said, the money they have sunk into their TV-on-demand service is also rather high, so I'd imagine that's a money spinner too. Though their business model for books (then CDs/DVDs) was basically to not care about margins, but to get people using them and not their competitors whom they wanted out of the way (or, later, using Amazon's platform and giving them a cut). Perhaps it's like that for their TV.

As has been mentioned, buying Whole Foods gives them physical stores, as well as a better fresh produce supply-customer chain that already well-serves the target audience for people who want to order food off Amazon - generally younger, relatively well off, urban-living, people.

I'd also imagine that it will also spread Whole Foods' psychical stores a bit into international markets - they have a couple of stores in London (in places that are trendy and have young people living there), but with Amazon behind them, they could expand a bit in the UK - as older relatively well off cosmopolitan Brits would love to shop somewhere like that - it out Waitroses-Waitrose: the supermarket here with a (unfair - its reasonably priced and basics are sold) reputation for being only for upwardly-mobile posher people*. My parents loved it when we went out for my aunt's wedding, though it's me that's more of the foody and the one who's a bit pretentious about beer (how I laughed at the beer/cider selection - not just the gimmicky nonsense that was prevalent among the local stuff, but the prices and the tasting notes. My favourite was the fairly large display of what would be a local beer to me (like 12 miles or so - perhaps my 5th or 6th closest brewery) that I've never seen in the UK, billed in such a way that suggested it was the height of bourgeoisie London taste from a suburb that I've always been taught to consider a little bit downmarket).

*Sure, you won't find plebby food there like Potato Waffles or Findus Crispy Pancakes, or really low-quality stuff, and you are more likely to find quinoa there than in other similar-sized places, but it's not as posh as the reputation it has...

[jakeroot]

Amazon's trying to leverage Whole Foods in two ways: brick-and-mortar locations; and a decently sized national food distribution network (which will help with Fresh home-deliveries).

I think this makes the most sense. Amazon isn't necessarily interested in Whole Foods, they're interested in the infrastructure that keeps Whole Foods supplied. The B&M stores are just a nice bonus.

I'd like to point out, again, that Amazon has a grocery store in Seattle that operates without check-out stands. IF it's a sucess, the Whole Foods stores would provide a great foundation for a national rollout. The type of person who shops at Whole Foods is often that progressive type who'd certainly be open to "new ways" of checking out.

That said, buying Whole Foods allows them to better comprehend how to run a grocery store on a large scale. They'd have a hard time scaling the Amazon Go concept without some sort of industry expertise or existing foundation. Nevermind that the typical Amazon Go consumer is the type of person who would probably shop at Whole Foods already, so they may as well just eliminate the competition now. 

EDIT: that's all in addition the Amazon Fresh business they run, which will almost certainly benefit from this acquisition in many, many ways, as users above have already mentioned.

[epzik8]

Wild

[noelbotevera]

As with all large mergers, I have this urging feeling this could be part of a decline. I mean, look at when large businesses try to buy each other out - Ames went bankrupt from purchasing Hills (when Ames actually recovered from their previous bankruptcy), Sears went into a steep downhill slope from K-Mart, and AOL purchased Time Warner...and then it all collapsed.

You're thinking of examples where there was already weakness your choice(s) of brands.

In the first and last examples, Ames and AOL were already making tons of money and were already massive companies by the time they started buying out companies, and in the example of AOL and Time Warner, both were recognizable and made colossal headlines when the two companies merged.

I'd say that this merger can make or break Amazon right here.