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Amazon Acquires Whole Foods

Share Costs, Price Cuts, and Grocery Delivery

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Grace, Keith

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In late August, popular grocery company Whole Foods was approved by the Federal Trade Commission to announce its merger with Amazon. This decision closed on August 28th, 2017, and upon this announcement, Amazon announced that they would make price cuts at the upscale grocery store to widen the variety of the customer demographic.

Amazon submitted a press release that announced the following benefits according to Forbes Magazine: “price cuts on Whole Foods staples, Amazon Prime as a rewards program for Whole Foods customers, Whole Foods’ private label products being sold through Amazon.com, Amazon Fresh, Prime Pantry, and Prime Now, and Amazon lockers located in Whole Foods Markets.”

The cost at which Amazon acquired Whole Foods was $13.7 billion. Amazon had agreed to pay $42 per share in cash for the grocery store, including debt.  The deal allowed the outspoken co-founder, John Mackey, of Whole Foods to remain the CEO. This was not easily done, as activist investor Jana Partners fought hard to prevent Mackey from keeping his powers. Partners had previously pushed for a buyout, causing Mackey to refer to her as a, “greedy bastard.” It was important for Mackey to find a willing company to acquire Whole Foods because he has such an emotional connection to the business, referring to it, according to Bloomberg Technologies, as his “baby.”

The day after the acquisition, as stated by Bloomberg Technologies, “investors worried that woes would mount in the increasingly cutthroat industry.” Walmart shares fell 7.1% while shares at Kroger, a retail company, fell a whopping 17%.

Amazon has been pushing to get into the food industry for the past few years, and they have finally broken that barrier. Their transaction with Whole Foods will open new doors for them into the affluent world of groceries. Amazon is also picking up Whole Food’s ownership of Instacart, an American company that operates as a same day grocery delivery service. Customers select groceries through a web application from various retailers, which are then delivered by a personal shopper.

According to Quartz Media, Instacart was a grocery startup valued at $3.4 million. The founder and chief of this company happened to get his start at Amazon. Quartz Media says that Instacart does not “hold any inventory but hires a network shoppers to pick and deliver grocery orders, placed through its app, from established stores.” The company signed a five-year agreement to make Instacart the exclusive delivery partner of Whole Food’s “perishable business’s.” Whole Foods also invested an undisclosed sum in Instacart as a part of that deal of which was pegged at $36 million.

Amazon’s acquisition of Whole Foods is a win for Instacart. For in previous years Instacarts number one competitor has been Amazon, similar to the competition between Amazon and Walmart. Instacart and Amazon had previously taken different approaches to online grocery shopping: Amazon’s Amazonfresh uses inventory and warehousing, while according to Quartz Media Instacart is, “asset-less.” Yet in they end they are all competing for the same customers.

 

 

https://www.bloomberg.com/news/articles/2017-06-16/amazon-to-acquire-whole-foods-in-13-7-billion-bet-on-groceries

https://www.forbes.com/sites/jeffreydorfman/2017/08/25/amazon-and-whole-foods-merger-to-introduce-cross-platform-selling-and-lower-prices/#7140c7c812f8

https://qz.com/1008022/what-amazon-buying-whole-foods-means-for-instacart/

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