Market Watch: Amazon's Healthy Acquisition
Amazon is going to have their own brick and mortar supermarket, as they recently acquired Whole Foods Market, one of the largest supermarket chain in the US for $13.7 billion on the price of $42 per share on June 16. Whole Foods Market will continue to operate its supermarkets under the Whole Foods Market brand while sourcing from existing vendors and partners around the world. John Mackey will remain as CEO of Whole Foods Market, and the Whole Foods Market’s headquarters will stay in Austin, Texas.
“This partnership presents an opportunity to maximize value for Whole Foods Market’s shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers,” said John Mackey, Whole Foods Market co-founder and CEO.
Starting as an online bookstore, Amazon is now one of the biggest online retailer business in the world. Its categories included clothing, video games, computers, beauty products, music, and far more general products. It is not surprising that Amazon even sells grocery on their website!
It is widely said the disruptive innovation of such e-commerce will eliminate brick and mortar retailers. However, in some cases, they may co-exist in a state where some goods will be placed on a shelf for consumers to pick them up.
It would be impossible for all grocery shoppers to buy groceries online. Not everyone can trust a member of a supermarket's staff to pick the food for them. For experienced grocery shoppers, they possess talents and knowledge such as how to avoid picking the flawed fruits and vegetables in the bunch. They may even suspect the deliberate inclusion of less than stellar produce.
Whole Foods Market started in the 1980 as a small supermarket in Austin, Texas. Now it is one of the largest supermarket chain in the US. In 2016, Whole Foods Market is only ranked behind of The Kroger Company, Safeway, Inc., Publix Super Markets, Inc., AB Acquisition LLC (Albertson’s), and H.E. Butt Grocery Company in annual revenue. Whole Food Market now has the reputation of selling healthy, organic, high quality and expensive grocery. In fact, it was the first national certified organic grocer. This attracted high income millennials, concerned about their health, quality of food, and treatment of the farm animals by supermarket chains. At the same time, Whole Foods Market has the service of allowing customers to choose delivery services that ship either to their house or to their local supermarket. This service is popular for young millennials too. Last year, Whole Foods Market earned $15.72 billion in revenue and generated $507 million profit.
At the moment, there are many food sellers like FoodserviceDirect Inc., Cooking Marvellous, and ValoMarket are already selling their food items at Amazon. Similar to many large grocery stores, Amazon has varieties of bagged food, snacks, cereals, canned food, fresh vegetables and fruits, and various types of frozen and fresh meats. After this acquisition, Amazon’s Food department will hold not only one of the major supermarket chains, but also significant market shares in grocery and food.
After Amazon successfully acquires Whole Foods Market, it will become one of the top five grocery chain in the US. Selling food and grocery will become another major revenue source for Amazon. At the same time, Whole Food’s business model is similar to Amazon’s business model; as a supermarket, it is expanding its shares through e-commerce. It does not only offer pickup and delivery services to its customers, but also offers meals, entrees, and gift cards.
However, it will still be a long way for Amazon to totally dominate the food and grocery market in the US. Although food is always high demanded, as everyone needs it every day, the supply is high as the competition when selling groceries. Besides the giant supermarket chain, local supermarkets and farmer’s markets can offer great deals to the locals. Amazon may need to worry about these “guerrilla competitions.” Price wars often happen among smaller supermarkets when they want to get rid off their inventories. Lastly, in the US, minor ethnic’s supermarkets are mainly built for those were not natively born at the US. For immigrants, between the different demand of food and being unfamiliar with English, their local supermarket still can hold their profits. For example, there isn't ginseng in majority of non-Eastern Asian supermarkets; it is highly demanded in East Asian communities. Similar situations may apply to Russians, Indians, and other specific supermarkets. At the same time, native born Americans can purchase generic food items in these supermarkets like fruit, meat, sauces, or other “exotic foods.” Their owners are likely to know more about those who share the same culture with them.
Amazon will continue to face many big and small competitors in the grocery and food market world. Even Amazon is not going to dominant the market; the point was opening more sources of revenue stream for Amazon. Later, Amazon may continue to expand into other markets like sporting goods by acquiring sneaker companies or continuing to gain more market share by solidifying their food and gourmet market. Regardless, be ready to witness the amazon name tagged on a number of different endeavors in the future.