Friday, June 23, 2017

Amazon Buys Whole Foods

The summer's biggest business news is that Amazon agreed to purchase Whole Foods for $13.7 billion. This story has particular relevance given the extent to which we buy our home goods through Amazon and many of our groceries at Whole Foods (I think we shop more frequently at Harris Teeter, but we definitely like the produce and dairy products at WF). 

Here's an excerpt from the Washington Post that explains one of the business reasons for the purchase:
The deal has the potential to boost the outsized ambitions of Amazon CEO Jeff Bezos and Whole Foods chief John Mackey, each of whom has already radically altered the way Americans shop. Like other grocers, Whole Foods is increasingly pushing its store brand products, most notably those under the “365 Everyday Value” name. Amazon already has shown an interest in boosting its own brands. After introducing its “AmazonBasics” batteries, for instance, the site made them the top result for “batteries” searches over Duracell and Energizer. If the Whole Foods deal goes through, those items could get prime real estate on a massive platform outside the chain’s 440 U.S. stores. Working in Amazon and Whole Foods’ favor is the growing acceptance of store brands, also known as generic or private-label brands.
This sounds like a variant of vertical/horizontal integration, in which Amazon will control additional aspects of the distribution chain. I gather that Amazon is also interested in delivering fresh food by drone (is this truly a possibility?) and in providing Whole Foods customers with the option of pre-purchasing their groceries and then picking them up in the store.

603. How does the price compare with other recent mega-mergers? In truth, $13.7 billion for Whole Foods strikes me as cheap.

604. Are there any antitrust concerns involved? I wouldn't think so, since the two companies specialize in different industries; on the other hand, it sounds like stock price of the other major grocers (Kroger etc.) have taken a hit since the deal was announced.

605. Does the proportion of our family's budget spent at Amazon increase, consistently, each year? If so, by how much?

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