Weekly Wrap: Amazon buys Whole Foods. Now what?

Major stock indexes eked out tiny gains after spending much of the day in the red, but grocery stores and retailers plunged on concern about new competition as Amazon said it would buy Whole Foods.Yesterday, Amazon stunned everyone when it revealed that it had agreed to buy out Whole Foods Market for a monstrous sum of close to $14 billion. “Whole Foods Market has been satisfying, delighting and nourishing customers for almost four decades”.”This just gives them more options, and that’s what consumers want”.The move comes at a challenging time for grocers.Amazon launched Amazon Fresh in 2007, a service that for a fee delivers groceries to customers’ homes but that has failed to make a wide impact.The grocery market, a $750 billion sector in the USA, is one of the few provinces in the retail world that Amazon hasn’t managed to radically alter. Gartner retail analyst Robert Hetu said Amazon could bring pieces of that to Whole Foods to further cut costs. Shares of Kroger, however, plunged 14% to $21.13, their lowest level in three years, on investor fears about the largest U.S. supermarket operator’s competitive position.Wal-Mart was just one of the many retailers whose stocks were impacted by the news that Amazon is acquiring Whole Foods. The hedge fund held 26,074,830 shares purchased at an aggregate price of about $794.5 million as of May 27, 2017, a filing with the US Securities and Exchange Commission showed. “Whole Foods’ online grocery channel is operated by Instacart, which will likely not be the case for long if the acquisition is approved”. “I see this as a way to branch out into a category Amazon doesn’t do very well in, by buying one of the best in the industry”.The online retailer will pay $42 per share in an all-cash transaction that also includes the supermarket’s debt.That’s frustrated investors saddled with a drop of almost 43 percent from the start of 2014 through Thursday, while the rest of the stock market marched 32 percent higher to record heights.”Limited-assortment” grocers, such as Kettering’s Trader Joe’s – stores that typically sell private-label goods and less variety in general – are growing quickly now.But mostly, online business gives shoppers choices, he said.Shares of Amazon were trading at $988.52 in pre-market trading, a 2.53% jump, while Whole Foods shares were down 6.74% at $33.06.Whole Foods, known for its organic and specialty food, will continue to operate stores under its brand and will continue to be led by cofounder and chief executive John Mackey, the two companies said. “Add to that the fact that Whole Foods doesn’t have the dominant positioning it did even a few years ago, and that makes it even more likely for this deal to go through”, said Michael Carrier, a Rutgers Law School professor who specializes in antitrust issues.Food companies Mondelez and Kellogg lost about 1.5 per cent each.Whole Foods has already been reducing prices to try to turn around its worst sales slump since going public in 1992.Whole Foods brick and mortar stores will remain open.