Amazon's deal to buy Whole Foods crushes stocks of supermarkets

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Although Amazon has been dabbling in the fresh produce arena in certain American markets recently, the acquisition of Whole Foods has upset the traditional groceries industry and also impacted food supply companies. And it shakes up a USA grocery industry that has been struggling to keep up with growing competition, both in stores and online. The Bentonville, Ark. -based retailer announced Friday that it had agreed to buy online clothing company Bonobos for $310 million.

But if Amazon can be the one-stop shop for everything - groceries had been one of the key missing elements - customers would have even less of a need to go to Walmart or elsewhere.

Amazon, meanwhile, has been expanding its reach in goods, services, and entertainment.

Whole Foods, founded in 1978, has more than 460 stores in the United States, Canada and the United Kingdom, employs 87,000 people and is the leading natural and organic foods supermarket. The acquisition price implies a trailing 12-month price-to-earnings multiple for Whole Foods of 31 times, versus a 14.4 average for the S&P 500 Food Retail index.

A decision by Goldman Sachs Group Inc a year ago to move an investment banking veteran to Seattle, as well as Evercore Partners Inc's hiring of a top banker defending companies against activist investors, has paid off handsomely. Her daughter Bethany Capels agrees and says she likes Whole Foods for the organic fruits she can serve her kids.

The transaction is subject to approval by Whole Foods Market's shareholders, regulatory approvals and other customary closing conditions, but the parties expect to close the transaction in the second half of 2017, it added.

The deal has the possibility to be "transformative", Moody's lead retail analyst Charlie O'Shea said in a note, "not just for food retail, but for retail in general".

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Amazon could try to cut operational costs at Whole Foods by using the same types of robots that already move inventory around at its e-commerce fulfillment centers. Amazon, which for years has been testing new technology and innovations in quiet corners, now would have a network of physical locations to test and implement those ideas. The shopper's Amazon account gets automatically charged. Groceries aren't a winner-take-all proposition, but Amazon may be about to eat a lot of lunches. In an email to customers, the company said it planned to maintain the same standards under Amazon, including bans on artificial flavors and colors.

And because customers can buy foods and bulk items like toilet paper from a single retailer, discount retailers such as Costco, Target and Walmart should feel threatened, too.

According to Reuters, the agreement also comes as a savior for Whole Foods, which has seen sales declines for past seven consecutive quarters. Or someone who buys granola bars monthly from Whole Foods and paper towels every other week from Amazon might be offered the items in a single shipment, delivered to the door.

"Although Whole Foods only holds 2.7 percent of the market, Amazon's resources and online channel will make it a larger threat in the food retailing market", IBISWorld's Hurley noted. The deal now gives Amazon control of those 431 stores, almost all of which are in neighborhoods that are more affluent and younger than America as a whole.

"Instead of deliver to my home, why not just come down here?"

"I like picking out my own stuff", Hall said.

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