Amazon Said to Plan Cuts to Shed Whole Foods' Pricey Image

A Wall Street sign near the New York
A Wall Street sign near the New York Stock Exchange on Sept. 30 2008
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20 June, 2017

The $13.7 billion deal brings to a head a years-long battle brewing between Amazon, the online darling, and traditional retail powerhouses likes Walmart.

The Seattle-based company already offers discounted Amazon Prime memberships for people receiving government assistance and is part of a pilot program to deliver groceries to food-stamp recipients.

The announcement of Amazon's largest acquisition yet sent stock prices for major grocery chains tanking Friday morning.

Moody's lead retail analyst Charlie O'Shea said the deal could be "transformative, not just for food retail, but for retail in general". The acquisition price implies a trailing 12-month price-to-earnings multiple for Whole Foods of 31 times, versus a 14.4 average for the S&P 500 Food Retail index. She feared the merger would simply create another, huge company with too much power over the American consumer.

Now Amazon will take on grocers like Wal-Mart and Kroger.

"If you can't make a good margin you can't reinvest to make a better product", Motkin said. "It's a bit unsettling". However, Whole Foods has only 431 stores against an estimated national total of over 38,441 grocery store locations.

Hartmann said he expects the online retailer to introduce some efficiencies to Whole Foods' operation. "I'm aging, and I was in there and I was surprised how many people were bent over with age".

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June 16 A decision by Goldman Sachs Group Inc a year ago to move an investment banking veteran to Seattle, as well as Evercore Partners Inc's hiring of a top banker defending companies against activist investors, has paid off handsomely.

When Amazon approached, Whole Foods turned again to Evercore.

Kroger, the Ohio-based grocery chain, also could make a run at Whole Foods, though its stock was torched today, dropping nine percent after the Amazon-Whole Foods deal was announced. Backed by its express delivery network, it has entered the USA grocery market with limited success through its online platform in recent years under a brand name known as AmazonFresh. "I think Amazon is very purposeful about taking the companies that they acquire and preserving the things that made those companies great and I think in the case of Whole Foods, it's a lot of the same values that are true to Austin and I think if anything you might start to see more Austin kind of show up in how Amazon does business in the world". He added that these are likely the higher-income households who tend to buy more expensive brands and cuts of meat.

The merger of Whole Foods and Amazon is expected to close later in 2017 after gaining approval from USA regulators and Whole Foods' stockholders.

Whole Foods has posted seven straight quarterly sales declines at established stores and recently overhauled its board of directors in the face of pressure from activist hedge fund Jana Partners LLC.

Amazon already offers grocery-delivery services in five markets, but analysts say expansion is tough because its current distribution centers are set up for dried goods, not perishables. The company, however, has faced fierce competition from neighboring retail chains, particularly Costco, Safeway, and Walmart.


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