Economy

Amazon buying Whole Foods for $13.7 billion

Amazon buying Whole Foods for $13.7 billion

The deal represents a dramatic turn in strategy for Amazon, which has offered food delivery through its Fresh service for a decade but has not made a major dent in the $700 billion grocery market. Right now, Ahold's stock is down by almost 10%. Walmart and Target also took significant hits. In the fiscal year 2016, the Company had sales of approximately $16 billion and has more than 460 stores in the United States, Canada, and the United Kingdom.

Amazon's dominance in the world of retail is undisputed.

Whole Foods, known for its selection of organic foods, has one store in the Santa Clarita Valley, in the Valencia Crossroads shopping center on Valencia Blvd. Grocery Outlet has about 20 locations scattered throughout Southern California, and more are in the pipeline.

"Retweet if you've also spent $13 billion at Whole Foods", quipped the comedian Chelsea Handler.

Both Amazon and Whole Foods cater to younger consumers including millennials as well as the affluent.

"Amazon can now answer the question, What are we having for dinner", he says. "And then suddenly it didn't work out - the cultures didn't fit, the business were completely different - and people started shaking their heads, saying, 'What were they thinking?'" Last year, Evercore poached Goldman's head of activism defense Bill Anderson, who for more than 12 years had advised more than 175 companies on how to tackle activist investors and hostile bids.

Despite mixed reviews, Amazon opened its seventh shop last month in the Time Warner Centre at Columbus Circle in NY, and plans to open another this year.

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Companies in the food business, he adds, are also under attack from another recent entry into the USA grocery pace, German grocer Lidl.

According to the release, Whole Foods will continue to operate under its own name and Mackey will stay on as CEO of the brand.

"No one excels at reducing pricing than Amazon", Steven Johnson of Foodservice Solutions said.

Amazon could cut costs if the technology gets good enough to deploy at Whole Foods locations. The hundreds of stores, clustered around urban areas, could essentially become holding grounds for Amazon products, according to James Bailey, a management professor at George Washington University.

Whole Foods recently had come under pressure from activist hedge fund Jana Partners LLC, prompting it to overhaul its board. Whole Foods, whose fleet of stores now numbers more than 430 locations, has found it hard to attract more mainstream consumers as Walmart and other large chains have stepped up their sales of natural and organic products. And it shakes up a US grocery industry that has been struggling to keep up with growing competition, both in stores and online. Year-to-date, the stock is up almost 39%. The stores stock about 7,000 products as compared to its regular stores which can have as many as 40,000.

Walmart, which has the largest share of the USA food market, has already been pushing harder into e-commerce to build on strength in its stores and groceries.

This partnership presents an incredible opportunity to take Whole Foods Market's mission and objective to new levels and best positions our company and our Team Members for future success.

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The deal is sure to put new pressure on Walmart, which has been aggressively expanding its online business in hopes of winning over consumers.

Wal-Mart sank 6.2 percent to $74.03 even as the big box retailer strengthened its ecommerce presence by buying online men's fashion retailer Bonobos for $310 million on Friday.

While their merger is subject to approval by Whole Foods' shareholders, regulatory approvals and other customary closing conditions, the two parties expect to close the deal during the second half of 2017.

"It's disrupting a number of industries here, and that's what's causing the market problems", said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Sarasota, Florida. But that's their real objective here so they can make a short-term profit.

"This will definitely make the market more competitive", she added.

But shares of Whole Foods shot up 29.1 percent to close at $42.68, while Amazon jumped 2.4 percent to $987.71, a gain of $11.3 billion in market capitalization, close to the value of the deal itself.

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