In Stock Market, Amazon Drowns Grocers To Save Whole Foods

Whole Food customers are still deciding whether the news of Amazon’s acquisition of the natural and organic foods giant is a good or a bad thing. But for supermarkets Kroger, Supervalu, Weis Markets, Ahold (Stop & Shop) and pretty much any other major grocer in America or elsewhere, the verdict is clear: It is a very bad thing. Inc. announced Friday (June 16) that it was purchasing Whole Foods Market Inc. for $13.7 billion in cash ($42 per share) — the eCommerce giant’s biggest transaction ever.

Whole Foods shares skyrocketed, bolstered by a 27 percent premium being paid. Meanwhile, other supermarkets’ grocery stocks took the deep dive at Wall Street: Kroger was down by 17 percent, Supervalu by 22 percent, Weis Markets by 9.6 percent and Ahold by 9.5 percent.

European grocers suffered, too. Tesco dropped 4.9 percent, Sainsbury 3.9 percent, Carrefour 3.2 percent, Casino Group 2.7 percent and Metro Group 1 percent.

Even Walmart, which until now had appeared to be on a non-stop victory lap in the grocers’ sector, dipped by 7 percent — though that’s still less than Target, which slumped 10 percent after the announcement.

But for Amazon and Whole Foods, the news is nothing but good. Bloomberg offered some insights and analysis.

For Amazon, the transaction adds to the eCommerce giant’s physical footprint and expands the company’s grocery delivery capability beyond dense metropolitan areas. Prior to the deal, such a move just wasn’t possible; Amazon didn’t have the infrastructure.

For Whole Foods, the e-tailer’s expertise on inventory management, distribution and pricing could play a key role in making the organic grocer relevant again for customers who have bled away to other, lower-priced health food sources.

But the move may be too little too late. Bloomberg noted that the competitive landscape has permanently changed, with the launch of German discount grocer Lidl in the U.S. just the most recent example of competitors drawing business away from Whole Foods.

The decline of Whole Foods has largely been due to the grocer’s stagnant high prices as well as issues with labor management and scheduling. But the company has made some recent strides in those areas, and the acquisition by Amazon could have the potential to bring it back from the dead.

Both companies are popular among the same demographics, and their customers have a high degree of brand loyalty. Bloomberg predicted that the merger would help the Whole Foods brand rather than hurt it. At this point, the organic grocer really has nowhere to go but up.