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Amazon: Aussie Retail Stocks Slide, Spooked by Whole Foods Bid

19 Juin 2017

The merger that shook food and retail stocks on Friday - Inc's proposed deal to buy Whole Foods Market Inc - rattled some employees of the upscale grocery chain who expressed fears ranging from layoffs to the loss of their laid-back corporate culture.

"Amazon is committed to cracking the grocery market, and a business like Whole Foods brings with it numerous crucial ingredients the e-commerce giant has been missing in its other forays into food and drink".

Amazon's shares rose 2.4 percent to $987.71, adding $11 billion to its market capitalization, which in one sense makes the acquisition almost free for Amazon shareholders. "It's a warning shot for the food retail industry that competition likely heightens on top of an already challenging backdrop".

On the flip side, Amazon could use Whole Foods stores as pickup locations for deliveries, an option Amazon already offers in many cities by installing lockers at 7-Eleven and other retailers.

Whole Foods accounts for just 1.2 percent of the U.S. food and grocery market share, while Amazon has just 0.2 percent, according to research firm GlobalData Retail.

A relentless focus on the long-run opportunity of selling practically everything to everyone has been the hallmark of Amazon founder and Chief Executive Jeff Bezos.

Now, Bezos will be Mackey's boss, and the combination of those two pioneers could upend the staid supermarket business.

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While the supermarket revenue growth is expected to continue at 2.2% up to 2022, IBISWorld analysts say ever since the introduction of Aldi to the Australian market, the entire sector is trying to get ahead on price alone, even though "supply chain prices have little room left to move". "Only just over a quarter of the United Kingdom population shopped online for groceries during the past year, and many consumers still don't do so regularly".

"Amazon has been in the food business for over 10 years and to now come to the conclusion that it needs physical brick-and-mortar stores is a pretty big deal", Jefferies analyst Dan Binder said in a note.

"One of the major challenges Amazon faced when it chose to pursue the lucrative grocery market was its lack of credibility in food".

Having dropped 4.92 per cent on Friday, Tesco's share price rose 0.85 per cent to 172.5p, while Sainsbury's, which closed 3.85 per cent lower last week, rose 0.9 per cent to 254.5p.

The stakes are highest for Wal-Mart.

The U.S. e-commerce giant announced earlier this year that it would roll-out a full offer in Australia this year. Overall, the company's US online sales rose 63 percent last quarter. "But the success of Aldi does suggest that there's a reason Wal-Mart should be anxious". But if the deal goes ahead, the heat is on for traditional food retailers. Founded in 2007 and rolled out slowly over the past decade, reports Ars Technica, the service allows customers willing to pony up some extra money to order groceries online and have them delivered to the customer's home. Gone are the fluorescent lighting, linoleum and dowdy shelves; Whole Foods nudged many of its competitors to soften the design of their interiors, hand out samples with a smile and revamp these stores into places to meet and dine, not just shop and checkout. Sprouts didn't respond to a request for comment. But Short said she believes another strategic buyout bid could emerge, so she raised her stock price target to $48, which is 14.3% above Amazon's bid of $42 a share, from $38.

Amazon did not immediately respond to Business Insider's request for comment.

Amazon: Aussie Retail Stocks Slide, Spooked by Whole Foods Bid