Why is Amazon buying Whole Foods? The opportunity of online grocery [Podcast]



Grocery is its strongest advantage right now against Amazon, its top competitor. But the Whole Foods deal is the start of something new. A union could boost the ambitions of both.

Investors should note that a Walmart play for Whole Foods is speculation at this point, and rumors like this are standard after big mergers are announced. However, the impact of this deal reaches far beyond these two companies as the stock exchange indicates. While service industries and developers have a lot of work ahead to help Whole Foods evolve, it means there will be vast opportunity to help grocers adjust because of this deal, and more importantly, to enable them to meet consumer demand.

The grocery industry, described as archaic by some and traditional by others, is still thriving offline.

Heightened food price competition was implicit in significant declines sustained in the share prices of food companies and food retailers after the transaction was announced, said Brett Hundley, an analyst with the Vertical Group, Richmond, Va.

Whole Foods' buying strategy, which appeals to many consumers, has made it possible for small players to get products into regional stores.

Amazon's purchase of Whole Foods last week sent shockwaves through the grocery industry-and now the real estate industry is fired up.

Amazon, in instantly acquiring a stable of its own grocery staples such as pizza sauce and peanut butter, could decide to give them favored placement in its search results. Meal delivery and grocery delivery works best in densely populated areas, and the supply chains for food delivery are quite expensive.

The Montgomery Global Fund and Montaka own shares in Amazon.

For starters, the move helps Amazon expand into an industry that has eluded them for some time. Plus, they have the money need to battle Amazon for Whole Foods. In the UK, Amazon has been accused of treating warehouse staff like "cattle".Whole Foods, though, seem undeterred. Prime memberships will enable Amazon to extend its online dominance into physical retail - using stores for pick-up, for example - and to use physical stores to entrench its power online.

Kroger executives could be more anxious about chain's 13-year streak of quarterly sales growth having ended, as reported in March, rather than trying to muscle in for Whole Foods.

And yet Kroger defeated its Bentonville rival decisively. With Amazon's help, the chain may be able to set itself apart again with technology. Shoppers skip the checkout line, and their Amazon accounts get automatically charged.

Mr. Sebastian wrote that "We view Amazon's ability to rapidly scale its air cargo investment as an indicator of the company's logistical sophistication, and should widen the competitive moat relative to other sub-scale retailers that rely on third-party carriers".

That could open up Whole Foods to a much broader customer base, said Theodore Waldron, an associate professor of management at Texas Tech University. Unlike other industries, volume sales of groceries are essentially fixed as individual appetites aren't growing and the USA population expands by only about 1% annually. Kroger has almost 2,800 stores that operate under a variety of names.

Of course, a union with Amazon could hurt Whole Foods' image on food quality. Similarly, Whole Foods acts as a curator for shoppers by banning ingredients like saccharin and bleached flour from the products it sells.

To prepare for the threat of the combined company, grocers will likely speed up plans to make their stores more appealing, leverage locations to offer delivery and do a better job of collecting shopper data.

"We're becoming a giant corporation in the USA", she said.

"Most products can be ordered online and delivered". Several large grocery retailers, led by Kroger Co. The Instacart delivery service, which has an important collaboration with Whole Foods, may wonder what its future will hold.

Ever since it emerged last week that the online behemoth intends to buy the online grocer for $13.7 billion, all signs have pointed to big changes at Whole Foods.

AP photographer Mike Conroy in Indianapolis contributed to this report. When you look at the total inventory in the chain, it's highly inefficient today.

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