The e-retailing pioneer that took shopping to the virtual world is back to selling the old-fashioned way, with its $13.7 billion takeover of Whole Foods Market, the first “Certified Organic” grocer in the US operating a mid-sized grocery and foods chain based in Austin, Texas.
The takeover will not change Whole Foods much. Co-founder and CEO John Mackey stays on as CEO. The brand, too, will remain intact.
The move created more than a minor flutter. Feeling threatened, Wal-Mart Stores Inc said on Friday it would buy online men’s fashion retailer Bonobos Inc for $310 million, in its fourth e-commerce deal in under a year, seeking to bridge the gap with e-commerce leader Amazon.com Inc.
Reuters reported that Amazon’s deal to buy Whole Foods comes as Wal-Mart is engaged in a price war with rivals such as Aldi and Kroger in the grocery segment, which makes up about 56 percent of Wal-Mart’s revenue. Quoting Ken Perkins, president of research firm Retail Metrics, it said Amazon’s move only adds to the pressure on Wal-Mart, as over time, the convenience and grocery delivery offered by the e-commerce giant would likely cut into Wal-Mart’s sales.
The urgency of Amazon to go in for the all-cash deal ($42 per share of Whole Foods stock) highlighted Amazon chief Jeff Bezos’ desire to stay on the ball and in keep pace with the competition. The deal will complete in the second half of 2017, subject to stakeholders’ and regulatory approval.
Mackey saw the merger as a win-win for all, saying in a joint statement: “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.”
Bezos promised a hands-off approach, saying: “Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy. Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades — they’re doing an amazing job and we want that to continue.”
Whole Foods, with over 460 stores in the US, Canada and the UK, had revenues of $16 billion in fiscal 2016.
The move by Amazon could perhaps be an example for Indian e-retailers such as Flipkart. Indians are in the habit of first “handling” goods they wish to buy. Physical storefronts will encourage them to make purchases with the discounts they can avail of online.
The only problem could be the old one – of overheads. What Amazon has tried to do in keeping Whole Foods as a separate unit is to cash in on the successful business model of the company and add e-outlets for further expediency in sales.