Amazon is spending billions on groceries - June 25, 2017
Amazon is stepping up its game in the brick and mortar stores business: the e-commerce giant is buying Whole Foods Market Inc. They are spending $13.7 billion on the groceries company making this their biggest acquisition to date. Both companies’ shares started to surge after the announcement while competitors took a serious hit.
Amazon’s old plan
Amazon was trying to get into groceries for years now, as it’s the last territory it didn’t conquer so far. They were trying to sell groceries online but didn’t achieve success with it. They also planned to launch brick and mortar stores, under the name of Amazon Fresh, but that was going slowly. After all it seems people love to buy everything online, except for grocery.
Therefore, Amazon had to find another way to penetrate the $800 billion industry. Their best bet so far is acquiring the organic food focused Whole Foods Market Inc., which has a 1.21% market share. But more importantly, they have a huge, premium customer base and more than 460 stores around the U.S., Canada and the U.K. This may not only help Amazon with selling groceries but with delivering goods faster and simpler.
The market loves the idea
No surprise that after the news of the acquisition, stock prices of both companies started to surge. Amazon’s prices went up more than 2% since the announcement, while Whole Foods Market Inc. skyrocketed with a 29% surge in a day.
Competitors on the other hand had a worse time. Wal-Mart, one of the biggest offline stores – which makes half of its revenue on groceries – plunged more than 4%, while Kroger fell almost 10%. The latter’s situation is even more difficult, as they are in a downtrend for days since they had to cut their profit forecasts too.
The biggest buyout of Amazon
The acquisition of Whole Foods Market will probably become Amazon’s greatest buyout of all time. What’s more, it’s bigger than the 5 hugest (openly discussed) acquisitions Amazon made so far.
It’s a big bet from Amazon leader Jeff Bezos, but then again: this is the only territory he didn’t nail so far, and the premium customers of Whole Foods Market may help him to succeed. This would also mean that he becomes the richest person on Earth, as after the acquisition of the groceries company, now he’s only 5 billion dollars short of taking over Microsoft’s Bill Gates.
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(Header image: Mike Mozart)