Amazon plans to acquire Whole Foods for $13.7 billion, what's next?
Amazon is planning to acquire Whole Foods for $13.7 billion, but if it really wants to shake up the grocery sector, it should consider buying discount stores, according to one analyst.
"If the goal is to fully compete against Wal-Mart (and the low-end), then could Dollar General be next on Amazon’s buying list to go after an arguably larger part of the U.S. population?" Gordon Haskett retail analyst Chuck Grom wrote in a research note Friday.
The Whole Foods acquisition gives Amazon the ability to attract customers that it already has, Grom wrote.
The majority of Amazon Prime members earn an annual income of over $100,000. Whole Foods appeals to a similar demographic.
To go after a larger portion of the population, Amazon needs to look at buying discount stores, Grom said.
Amazon and Dollar General did not immediately respond to a request for comment.
At the beginning of June, Amazon announced it would be offering reduced Prime membership rates for American shoppers who are on government assistance. This was seen as a way to poach customers from competitors such as Walmart and Costco. According to Morningstar, nearly $1 out of every $5 spent using the Supplemental Nutrition Assistance Program, better known as SNAP, was spent at Walmart last year.
Both Amazon and Walmart have increasingly made efforts to attract both high and low income earners. As the gap between wealthy and poor Americans widens, the middle class is becoming less of an appealing target for nationwide retailers.
According to a study done by the Pew Research Center, between 2000 and 2014, middle-class populations decreased in 203 of the 229 metropolitan areas.
"From postwar to about the late 1970s, you wanted to be in the mid-tier of retail. That is where everybody was making a fortune, including Walmart," Doug Stephens, a retail-industry consultant, told Business Insider. "Then from 1980 onward, you wanted to pick a side, because it started to become clear that the middle class was evaporating."
"This is absolutely symptomatic of a deteriorating middle class, or at least what we used to consider to be the middle class in America," Stephens told Business Insider.
Today, it's the retailers who are able to cater to these two groups that have seen success.
While discount off-price stores such as TJ Maxx and Ross Stores announce store openings across the US, department stores such as JC Penney and Macy's who cater to middle-income shoppers are being increasingly squeezed out.