Amazon just acquired Whole Foods for $13.7 billion — a decision that should terrify retailers like Walmart and Target.
Amazon announced plans to acquire Whole Foods for $13.7 billion on Friday. The move should terrify more traditional brick-and-mortar grocery retailers that are fighting to dominate the online grocery business.
Shares of Kroger, Target, Costco, and Walmart all plummeted after the news was announced, with Kroger's shares hitting a three-year low.
These companies have made major investments in online grocery in recent years, debuting services like click-and-collect and online delivery.
"Amazon's announcement this morning that it had agreed to acquire Whole Foods Markets for around $14 billion is a transformative transaction, not just for food retail, but for retail in general," Moody's lead retail analyst Charlie O'Shea wrote in a note to investors on Friday. "Implications ripple far beyond the food segment, where dominant players like Walmart, Kroger, Costco, and Target now have to look over their shoulders at the Amazon train coming down the tracks, but also the potential for multi-channel, which Amazon up until now has largely eschewed."
Amazon has begun testing some brick-and-mortar locations of its own, including Amazon Fresh grocery stores. With the acquisition of Whole Foods, the e-commerce giant now controls both an established brick-and-mortar grocery system and the infrastructure to build to successfully execute online sales — an area where most grocery chains are lagging behind.
Up to this point, one of traditional retailers' biggest advantages over Amazon have been their established base of brick-and-mortar stores.
"By giving customers the flexibility to choose when, where, and how to shop, Walmart is able to better serve customers in a way pure online players cannot," Jefferies wrote in a note to investors, summarizing the company's president and CEO David Cheesewright's argument at a recent event. "Food and consumables are great traffic drivers and Walmart's vast distribution and store network gives it a leg up in serving the customer."
With more than 460 stores in the United States, Canada, and the United Kingdom, Whole Foods is not nearly as large as Walmart's 4,692 locations. However, most of Whole Foods stores are in major US cities, providing crucial brick-and-mortar grocery centers for Amazon in these key markets.