Amazon on collision course with Wal-Mart with Whole Foods deal

Whole Foods

Using industry share figures compiled by brokerage firm Cowen past year, and crunching them in University of North Carolina law professor Andrew Chin's useful HHI online calculator, the supermarket industry comes out with an HHI of just 1,267-about half of the 2,500 score the government uses to define a highly concentrated industry.

News of Amazon's purchase of USA supermarket chain Whole Foods for $US13.7 billion ($17.9 billion) has sent global retailers into a spin, but closer to home, one expert says the deal could have a longer term impact on the supermarket wars.

Here's how leading retail analysts saw Amazon's move. It is also expected that Amazon could shave off a few margins from the Whole Foods business to offer cheaper groceries and disrupt the market.

There's a strong sense from investors that Amazon is upending the entire business.

Groceries are already a fiercely competitive business, with low-priced rivals like Aldi putting pressure on traditional supermarket chains and another discounter, Lidl, opening its first USA stores just this week. It is not strictly limited to food but to all groceries instead, and it simply allows for a wider selection and faster delivery time of such products than normal Amazon. While it won't alter Amazon's ambitions in digital or put a stop to innovative experiments like AmazonGo, it puts the food business on a different and steeper growth trajectory. He benefited in 2013 when a USA court ruled that Apple and the top five USA publishers had conspired over ebook prices to the detriment of Amazon and the consumer.

Amazon could try to use automation and data analysis to draw more customers to stores while helping Whole Foods cut costs and perhaps prices.

It had previously signalled its intent in grocery with its Amazon Fresh proposition and a United Kingdom tie-in with Morrisons, and offers a one-hour delivery service with a number of USA independent wine retailers, and was already trialling a revolutionary new "grab and go" bricks and mortar grocery store for food and alcohol in Seattle, although it has yet to open the to the public.

Shares in Ocado leapt this morning as investors began to speculate following Amazon's $13.7bn (£10.7bn) takeover of upmarket USA grocer Whole Foods on Friday.

Shares of dozens of supermarkets, food producers, payment processors and shopping malls collectively lost at least $35 billion in US market value on Friday as the news reverberated across financial markets. Also, it may be seeing the last mile as a real prohibition to profitability in multi-temperature goods. Whole Foods' online presence is tiny, estimated at just $100 million, and executed through its web partner grocer Instacart.

Joking aside, the purchase will mean a serious disruption: rather than a brick-and-mortar store getting into e-commerce, in this deal an online behemoth will be moving onto Main Street, and in one fell swoop acquiring more than 450 stores in the US, Canada and Britain. "Having said that, there is probably no doubt that a material new ingredient has been thrown into the global grocery sector M&A melting pot". More than 57 percent of Target's regular customers use Amazon's Prime membership program, according to consultancy Magid Associates, compared with 42 percent of all consumers. "From a credit perspective, Amazon has over $2 billion cash and investments, and leverage of under 2x at the most recent quarter end, so significant amounts of financial flexibility are clearly evident".

When it comes to the Whole Foods deal, though, there is little reason to fear an Amazonopoly. The leadership of the business remains in place and it is likely to continue focusing on executing its turnaround strategy. 'Whole Foods Market has been satisfying, delighting and nourishing customers for almost four decades - they're doing an wonderful job and we want that to continue.

"Why does Amazon buy Wholefoods?"

"However, access to product and distribution points will determine its success, particularly in grocery". Stores are ideally located for that. Customers had to open the Amazon Go app on their smartphones and scan a special QR code at the door that would log them into their Amazon account before entering the store. Developing PL is time consuming.

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