Amazon-Whole Foods deal brings Internet power to brick-and-mortar

Online retailing giant Amazon is acquiring Whole Foods Market Inc. for approximately $13.7 billion, the companies announced Friday morning. The announcement sent both companies’ stocks tumbling, but that reaction may be premature. It seems both companies have something to gain from the deal.

Amazon.com, Inc., has agreed to pay $42 per share for Whole Foods’ assets and debt. The deal was announced just a month after an apparent shakeup on Whole Foods’ board, which was prompted by falling sales.

Founded in 1978, Whole Foods has long been the primary source consumers had for natural and organic versions of their traditional grocery favorites. As other retailers find ways to offer similar fare, however, the company has struggled to differentiate itself.

Natural, organic and healthy alternatives to traditional foods? They compete with Trader Joe’s and Earthfare. Restaurant quality food? Competition from restaurant and meal delivery companies has been fierce. Even competing as a standard grocery is problematic, as traditional supermarkets like Kroger are often lower-priced, and Aldi offers an even lower-cost alternative.

Meanwhile, a European grocery chain called Lidl is on its way to enter the U.S. market on the East Coast.

For its part, Amazon has already stepped up its game against its main competitor, mega-retailer Wal-Mart. Amazon’s existing grocery offerings are pressuring Wal-Mart to offer home delivery and curbside pickup of online orders.

After the deal closes, which is expected in the second half of this year, Whole Foods will continue to operate under its own name with no immediately obvious change. Its existing CEO is expected to continue in his job and the headquarters will remain in Austin, Texas.

In the future, however, it’s possible that Amazon will bring new offerings to the store. Brick-and-mortar stores aren’t as new as online retailers, but they have their advantages. For one, it’s easier to encourage impulse purchases when consumers can see and touch them.

Ratings and Reviews

9.2David J. Steele II
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