Retailers should ‘look over shoulder’ after Amazon deal

Amazon’s shock purchase of US grocery giant Whole Foods Market means UK grocery retailers need to “look over their shoulder”, it has been claimed.

It emerged on Friday that Amazon is to pay $42 a share for organic grocer Whole Foods, amounting to a $13.7bn (£10.7bn) stride into traditional retailing.

Whole Foods, founded in 1978 in Texas by outspoken CEO John Mackey, has grown to more than 450 stores in the US and Canada, with nine in the UK, and employs about 87,000 people.

The acquisition is another major step into grocery retailing by Amazon, whose initiatives include its Amazon Fresh grocery ordering portal, and the piloting of cashless convenience stores with no tills.

Harsha Wickremasinghe, associate at international mergers and acquisitions firm Livingstone said the move was indicative of Amazon’s intention to become a serious player in global grocery.

“This is the clearest indication that Amazon intends to be a serious player in grocery retail – and is a significant wake-up call for grocery retailers in the North America and the UK,” he said.

“It also highlights that Amazon clearly believes that in order to achieve long-term success in the grocery category, it is essential to have a bricks-and-mortar presence.”

Mr Wickremasinghe said it was widely known that Amazon was scouting for prime-Central London locations as part of its move into grocery retail in the UK.

“Exactly 12 months since the launch of Amazon Fresh in the UK, and in one fell-swoop, the online giant will now have nine supermarkets in the UK – seven of which are London-based,” he said.

“Whole Foods’ proposition also has an excellent fit with the typical London-based Amazon Prime Customer.  The UK grocers have downplayed Amazon’s impact on their sector to date, but this latest move should have them genuinely looking over their shoulder.”

Commenting on the deal, Whole Foods boss John Mackey said it presented an opportunity to maximize value for Whole Foods Market’s shareholders, and quality, experience, convenience and innovation for customers.

Amazon founder and chief executive Jeff Bezos said: “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.”

The move is sure to delight Whole Foods investors, who had grown dissatisfied after falling same-store sales and increased competition.

Last month, the company named a new chief financial officer and new board members.

In the first quarter of 2017, Amazon’s operating cash flow increased 53% to $17.6 billion on the previous 12 months.

The takeover deal – the biggest in Amazon’s history – is expected to be completed in the second half of the year, pending approval by shareholders and anti-trust regulators.

The Whole Foods brand will remain in place in the short term, with Mr Mackey expected to stay on as chief executive.