Amazon and Whole Foods: Is This a Grocery Apocalypse?
The surprise acquisition might not be so big, but the implications for grocers are staggering.
On paper, it’s just a midsize merger. If Amazon.com’s $13.7 billion deal for Whole Foods Market goes through unchanged, it will rank as the No. 4 U.S. retail deal, according to Thomson Reuters, behind an uninspiring list that includes Supervalu-Albertsons, Walgreens-Rite-Aid, and Kmart-Sears.
But Wall Street wasn’t thinking much about dollars and cents on Friday. Instead, Amazon’s (ticker: AMZN) surprising Whole Foods (WFM) acquisition had investors doing a rapid assessment of retail’s future. Shares of companies seen as suddenly more vulnerable to the Amazon juggernaut got hammered.
Grocery chain Kroger (KR) topped the casualty list, with its stock down 9.2%; followed by Costco Wholesale (COST), down 7.2%; Target (TGT), off 5.1%; Walgreens Boots Alliance(WBA), down 5%; and Wal-Mart Stores (WMT), off 4.7%. These were the names that investors feared had become direct Amazon competition overnight.
But the pain was far more widespread. Spice maker McCormick (MKC) fell 3.5% on Friday, packaged-food maker Conagra Brands (CAG) was off 3.2%, and even food producer General Mills (GIS) slipped 2.9%. Picture a grocery store: These are all products sold in the middle aisles, the stuff with healthier profit margins.
That’s now Amazon territory, especially since the company already has had some success making private-label products such as shirts, batteries, and baby wipes. Add in Whole Foods’ own 365 brand, and you can understand the cause for concern across the grocery and food industries.
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