Amazon Gears Up for a 14-Billion-Dollar Buyout of Whole Foods – It’s Biggest Ever

Closure of 14-billion-dollar deal with Whole Foods awaited – will be Amazon’s biggest ever acquisition if the deal goes through

Amazon Gears Up for a 14-Billion-Dollar Buyout of Whole Foods –Its Biggest Ever

Amazon is all set to take over “Whole Foods Market” by the end of the year for a stupendous sum of $13.7 billion, its largest acquisition by far, surpassing its buyout of online shoe store Zappos in 2009 by a huge margin of $ 12.7 billion – more than 14 times.

As of now, Zappos continues to be Amazon’s biggest acquisition until the Whole Food deal, pending regulatory approval, is closed; it will then become a distant second – way distant.

The tit-for-tat buyout decision is seen by many as a direct faceoff with its long-time rival, Walmart, the largest grocery retailer in the United States.

In a bid to keep up with the internet shopping business, Walmart paid $3.3 billion for Amazon-competitorJet.com last year and made the chief executive of Jet, Marc Lore, the chief of Walmart’s complete e-commerce business. To further shore up its internet retail presence, Friday it announced its decision to acquire Bonobos, the Internet apparel retailer for $310 million.

With this deal going through, Amazon is looking to take a foothold in the $800 billion grocery industry, and a big one at that, what with over 400 stores spread across the United States, Canada, and Britain. If this is not a direct challenge to Walmart, what is?

“This deal should leave no doubt that Amazon is deadly serious about dominating all aspects of retail,” Paul Cuatrecasas, chief executive of Aquaa Partners, a London-based investment banking firm said. “Amazon is effectively saying that if retailers are going to tool themselves up with technology, then they will tool themselves up with a physical presence and high-street brand.”

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As of now, Amazon is rather taciturn about it is plans for Whole Foods. However, the fact that it opened a prototype grocery store/supermarket (Amazon Go Store)in Seattle this year, with droids running the cashier-less store, is indicative of the automation plans Amazon may have for the 400+ Whole Foods stores.

The online giant’s announcement of the takeover does not come as a surprise as it has been testing the waters of the lucrative grocery business for over a decade. “Amazon Fresh” was launched in August 2007 delivering grocery and pantry staples through its fulfillment centers.

Yet, even after a decade, Amazon continues to see great potential in the grocery industry, evident from the massive takeover, to ensure a physical dominance in this area, as well.

Launched in March this year, “AmazonFresh Pickup” is another pointer toward Amazon’s growing interest in the produce business.

Walmart and Kroger have similar modules where a customer orders groceries online, drives to a company-run store, where an employee brings the bag/s right up to the customer’s car. However, they take to 2-4 hours to process an order whereas Amazon does it in fifteen minutes.

Both the business models, Amazon Go, discussed earlier, and AmazonFresh Pickup, are not only novel ways of ensuring a ‘minimum-friction shopping experience’ for customers but effective labor cost cutting tools as well.

“Amazon buying Whole Foods is a good fit with the company’s larger strategy for groceries,” says Jason Goldberg, vice president of commerce at the digital marketing company Razorfish. “Fresh groceries is the biggest category of consumer spending in retail that hasn’t been disrupted by online yet,” as reported by Wired.

Amazon may be all prepped up to give Walmart a run for its money but it must be pointed out that the competition will be restricted to urban areas as Whole Foods doesn’t take Amazon to rural America where Walmart rules the roost.

“Amazon is stronger in bigger cities, and the map of Whole Foods locations shows it is closer to these cities,” says Goldberg. “If this strategy proves out for Amazon, you could well imagine it could be opening a bunch more stores or doing more acquisitions just to cover the US,” says Goldberg. ”

The Friday announcement sent competitor shares crashing as investors tried to come to grips with Amazon’s big time incursion in the grocery industry. SuperValu, running a network of 2,000 stores across America, was the biggest casualty, with a 14 percent drop on Friday while Kroger saw its share value going south by 9 percent.

Shares of Whole Foods, on the other hand, took off by almost 30 percent and Amazon was up by 2.4 percent raising its share value to $987.71, adding a cool $11 billion to its market capitalization – almost covering the cost of the acquisition, in a way.

This is what Mickey Chadha, vice president and senior credit officer at Moody’s Investors Service, had to say about the acquisition:

“Supermarkets will now have to contend with not only competition with each other and non-traditional grocers like Wal-Mart Stores Inc and Target Corp, but with a retailer like Amazon which has the financial capacity to price aggressively.”

In a statement released Friday, Marc Perrone, the president of the United Food and Commercial Workers Union, said: “Amazon’s brutal vision for retail is one where automation replaces good jobs. That is the reality today at Amazon, and it will no doubt become the reality at Whole Foods.”

However, for now, Amazon has assured that the acquisition will not result in any downsizing.

If Brittain Ladd, former senior manager at Amazon, is correct in his assessment, the e-commerce giant may well build out non-grocery areas within the stores, particularly for pharmacy and Amazon devices, reports Reuters.

“There’s no value in Amazon keeping the status quo at Whole Foods. Whole Foods was losing market share to Kroger,” Ladd said, according to Reuters. “It’s pharmacy. It’s having the ability to put stores that are similar to Apple stores inside Whole Foods.”

Being the powerhouse that it is, Amazon is being looked at by some analysts to bring a massive buying strength to Whole Foods, although Amazon’s grip on the food market is not as firm as it is in other areas. Also a high and growing demand for organic food give farmers a bargaining edge.

About Amazon

Jeff Bezos founded Amazon.com on July 5, 1994, initially setting up his business in his garage.

Portfolio.com has very aptly described Bezos as “at once a happy-go-lucky mogul and a notorious micromanager: “an executive who wants to know about everything from contract minutiae to how he is quoted in all Amazon press releases.”

What actually inspired and pushed him into founding Amazon, leaving a lucrative job at a New York City hedge fund, was the “rapid growth in internet use.”

Jeff Bezos referred to it as “regret minimization framework,” which basically means he wanted to capitalize on the internet boom at the right time and not regret the delay in joining in sooner.

However, another factor that propelled him toward the Amazon idea was the U.S. Supreme Court ruling at the time that mail order companies were exempt from collecting taxes in states where they did not have a physical presence, such as offices, warehouses or any other physical property directly or indirectly related to the business.

Headquartered in Seattle, the company was initially named “Cadabra” by Bezos, changing it to “Amazon” a year later. The humor behind the name change is that a lawyer happened to have misheard the name as “Cadaver” which, as we all know, means corpse or a dead body.

The story goes that Amazon was named after the mighty Amazon River, “exotic and different,” which matched Bezos’ vision of making his company different, exotic and the biggest in the world.

From its rather humble beginnings as an online bookstore, Amazon has grown into an “electronic commerce and cloud computing company,” the largest internet retailer in terms of total sales and market capitalization.

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Of course, the growth of Amazon into what it is today went through different stages of diversification – from selling books online to DVDs, CDs, video downloading and streaming, Bluerays, MP3 downloading and streaming, audio books downloading and streaming, electronics, software, video games, furniture, apparel, food, toys, jewellery – you name it and they have it delivered to your doorstep! Amazing Amazon!

It does not end here; Amazon is also into manufacturing consumer electronics such as Amazon Kindle e-books, Fire tablets, and Fire TV, to name a few, in addition to being one of the world’s largest providers of cloud computing infrastructure services.

Amazon’s long history of acquisitions and mergers dates back to 1998 and has continued ever since.

Here’s a look at its acquisitions in the last 5 calendar years (source – Wikipedia).

2013:

* IVONA Software
* Goodreads
* Liquavista

2014:

* Double Helix Games
* comiXology
* Twitch

2015:

* Annapurna Labs
* 2lemetry
* ClusterK
* Shoefit
* Safaba Translation Systems
* Elemental Technologies

2016:

* Amazon increased its overall investment in India to $5 billion, and with that, reduced seller fees to take on its Indian competitor, Flipkart
* NICE
* Curse, Inc.
* Biba Systems

2017 (till date):

* Harvest.a
* Thinkbox Software
* Do.com
* Souq.com
* Whole Foods Market
* And now, it’s grocery!

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