Amazon buys supermarket chain Whole Foods Market

Amazon buys supermarket chain Whole Foods Market

Amazon buys supermarket chain Whole Foods Market

However Citi analyst Bryan Raymond says Amazon's influence in Australia's grocery industry is likely to be small and the online retailer is unlikely to follow up with a major grocery retailer purchase in Australia.

Amazon already offers grocery-delivery services in five markets, but analysts say expansion is tough because its current distribution centers are set up for dry goods, not perishables.

Whole Foods is renowned in the USA for its high-quality premium organic and natural grocery products.

Wedbush Securities analyst Michael Pachter lent weight to that theory.

Groceries are already a fiercely competitive business, with low-priced rivals like Aldi putting pressure on traditional supermarket chains and another discounter, Lidl, opening its first USA stores just this week.

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Whole Foods has recently come under pressure from an activist investor prompting it to overhaul its board. Whole Foods itself had launched an offshoot chain named after its "365" private label brand in a nod to the popularity of no-frills chains.

Citi calculated that the Whole Foods purchase is equivalent to buying a 34 store, $1.5 billion turnover business in Australia - something half the size of the Ritchies IGA supermarket business.

Experts claim Amazon expressed an interest in Whole Foods past year, but the deal fell through at that time.

"Dominant players like Walmart, Kroger, Costco and Target now have to look over their shoulders at the Amazon train coming down the tracks", O'Shea said. Get Fully Charged, from Bloomberg Technology. "Most of us like to see what we're buying, and it's a good store, but we just wouldn't buy online", he said.

"It's pharmacy. It's having the ability to put stores that are similar to Apple stores inside Whole Foods", he said.

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All of these technologies can now be slowly integrated into Whole Foods stores to reduce head count, increase profit margins and improve the chain's relationship with customers. In an email to customers, the company said it planned to maintain the same standards under Amazon, including bans on artificial flavors and colors.

"This might be an opportunity for consumers who have felt that Whole Foods is inaccessible", said Lauren Beitelspacher, a marketing professor at Babson College in MA. Bank of America Corp also provided financing to Amazon, while Evercore Partners Inc advised Whole Foods.

USA analysts say the acquisition, when completed, is not aimed at dominating the United States grocery business (valued at an annual $US612 billion, according to IBISWorld), but Amazon is aiming at being among the top five in its core markets, places affluent millennials can be found: San Francisco; New York City; Boston; Austin, Texas; and Philadelphia. Or someone who buys granola bars monthly from Whole Foods and paper towels every other week from Amazon might be offered the items in a single shipment, delivered to the door. Amazon also just launched two grocery pickups kiosks in Seattle that allow its Amazon Prime customers to buy online and pick things up in as little as 15 minutes instead of having them delivered.

"Amazon Fresh is their Waterloo", said Mackey, known paradoxically both for his earthy passion for organic foods and his imperious business swagger.

Adrienne Anderson, at a Whole Foods in Savannah, Georgia, says she shops at Whole Foods nearly exclusively for meat and fresh produce "because of the quality and selection" and because fruits and vegetables are locally sourced.

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Those buildings come with warehouse space, truck loading docks, and experienced logistical workers, making them a flawless nucleus from which to expand grocery delivery, and eventually, maybe even delivery of other staples. Amazon, though its Prime benefits program has created strong loyalty, has a long way to go before it's a default choice in groceries as it often is for books and electronics. The stores could also showcase gadgets such as Kindle e-readers and Fire tablets. Over the last decade, the Amazon Fresh delivery service, which drops big green totes of supermarket items on people's doorsteps, has been one of the online retailer's rare disappointments.

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