In a week where it was rumored to be eyeing workplace productivity app Slack, Amazon surprised everyone on Friday by announcing that is in fact acquiring America’s upmarket grocer Whole Foods Market for a whopping $13.7 billion.
It’s a massive deal that provides huge parts of the answers to two of the most interesting questions in retailing: How can Whole Foods save itself? And how will Amazon deepen its flirtation with the brick-and-mortar retail business, which it’s been pushing with its Amazon Books locations and some physical retail tests in its hometown of Seattle—while deepening its strength in the e-commerce grocery trade?
Amazon will pay $42 a share to acquire $WFM, a 27 percent premium to the closing price on Thursday of Whole Foods lagging stock, making the transaction by far the largest in Amazon’s history.
“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” stated Jeff Bezos, Amazon founder and CEO. “Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades—they’re doing an amazing job and we want that to continue.”
“This partnership presents an opportunity to maximize value for Whole Foods Market’s shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers,” added Whole Foods Market co-founder and CEO John Mackey, who’s been pressured lately by the activist investors at Jana Partners.
In selling to Bezos, he gets to keep his job, protect his company (no longer solely independent but nested with Amazon) and acquire deep pockets to grow and scale his brand.
— Beth Kowitt (@bethkowitt) June 16, 2017
Mackey will stay on to run the Whole Foods business, which will continue to operate under its brand and maintain its suppliers, the companies said. Whole Foods has about 450 stores spread out among 42 US states and is experimenting with a private-label, lower-priced chain, 365 by Whole Foods Market, and a standalone restaurant concept that just opened in Atlanta.
For Whole Foods, being acquired by Amazon is the perfect response to its growing difficulties over the last few years with shopper attrition due to its infamously high prices and increasingly stiff competition from organic and natural fare, usually at lower prices, being expanded by Walmart, Kroger and foreign entrants such as Lidl (which just launched in the US this week) and Aldi, both from Germany.
For Amazon, the move proves that its flirtation with brick-and-mortar grocery concepts—including Amazon Fresh Pick Up locations and the Amazon Go concept, a test store of the future in Seattle—has been no mere infatuation. The online giant wants to get a bigger piece of the more than $600 billion edible-food consumer-spending category, especially spending by the ascendant millennials and Generation Z.
And there likely is no better way to do that quickly than to acquire an operation such as Whole Foods, whose products and ethos (such as the Values Matter campaign) are very much on trend with younger consumers, and where there’s presumably considerable overlap between Whole Foods customers and members of Amazon’s Prime free-delivery subscription service as well as the Amazon marketplace in general.
“This could mean that Amazon plans to integrate its Prime service into the Whole Foods ecosystem,” Tom Caporaso, CEO of Clarus Commerce, a loyalty-technology firm, told brandchannel. “Whole Foods stores could soon become distribution centers for Prime Now or Amazon Fresh, increasing [Amazon’s] reach.”
Amazon’s move also effectively acknowledged the difficulty that the online pioneer has seen ahead in cracking the code on making the e-commerce experience similar enough to bricks-and-mortar grocery retailing, where the experience of shopping—ranging from feeling the firmness of produce to making impulse purchases—is very important to many Americans of all generations.
There’s also increasing competition for physical supermarket shoppers, including by two major German retailers that are notable not only for discounted prices but also healthy fare: Aldi, which is undertaking a huge expansion in its already-formidable US presence, and Lidl, which this week began opening stores in the East. Kroger provided another indication of the increasingly brutal environment in grocery retailing this week by lowering its earnings forecast for the year.
“This is the most difficult time I’ve seen for the industry, and I’ve been in it for 47 years,” David Cianco, a senior customer strategist for Dunnhumby and former Kroger executive, told the Wall Street Journal.
Meanwhile on Friday, major Amazon competitor in Walmart made another move to shore up its e-commerce offering (in the wake of acquiring Jet.com last year) by buying the hot men’s clothing company Bonobos for $310 million in cash.
Bonobos started online in 2007, has expanded its assortment over the years, and also has opened 35 brick-and-mortar stores, Chain Store Age said.
The move is in keeping with Walmart’s recent efforts to compete with Amazon by beefing up its online fashion offerings and widen its appeal by buying digitally native brands that target millennials and younger consumers.
Founded in 2007, Bonobos has expanded its assortment over the years and has also opened 35 brick-and-mortar stores (“Guideshops”). It also has a partnership with Nordstrom.
Upon completion of the deal, Andy Dunn, founder and CEO of Bonobos will report to Marc Lore, president and CEO of Walmart U.S. eCommerce. Lore is being given a major role at Walmart: He will oversee the company’s collection of digitally-native vertical brands, which, in addition to Bonobos, now includes Moosejaw, ShoeBuy and ModCloth.
“Adding innovators like Andy will continue to help us shape the future of Walmart, and the future of retail,” stated Lore. “I’m thrilled to welcome Andy and the entire Bonobos team. They’ve created an amazing product and customer experience, and that will not change. In fact, Andy will be a great influence on the company, especially in leading our collection of exclusive brands offered online.”
The acquisition, which is subject to regulatory approval, is expected to close toward the end of the second quarter or the beginning of the third quarter of this fiscal year.