UBS: Here's what Amazon's deal for Whole Food means for Costco, Walmart and Target (AMZN, WFM, COST, DG, DLTR)

pulse

June 16, 2017 8:51 PM

Amazon just bought Whole Foods and sent shares of its grocery competitors off the cliff.

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Now that Whole Foods is looking like it will be part of a larger corporation, short term profitability is less of a concern, according to Michael Lasser, an analyst at UBS. This will free the grocer to invest more heavily into increasing same-store sales, a weakness for the company in recent earnings reports. Amazon could help the store cut prices, which is bad news for its competitors.

What does this mean for the future of your local grocery store? If you are to believe Lasser, it depends entirely on the business model of your grocer.

Amazon's shares were climbing

Both stocks were hit hard in the wake of the announcement. But the chains serve entirely different markets to Whole Foods, which means that while the stocks are down temporarily, the companies will probably survive, Lasser said.

For a lot of impoverished areas, these dollar stores often serve as the only place to buy food locally. These areas are often called "food deserts," and Dollar General and Dollar Tree are some of the only companies investing in those areas.

Costco was also down following the Whole Foods announcement. The two grocers both have a warehouse feel to them but have very different business models. Lasser points out that Costco has invested heavily in areas Whole Foods is not known for.

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