Amazon may literally be planning to gobble up the whole world.
The online giant just took a big bite out of the supermarket sector today with the announcement that it will acquire Whole Foods Market for $13.7 billion, which includes the food chain’s net debt.
“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” said Jeff Bezos, Amazon founder and CEO. “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.”
Whole Foods will continue to operate under its own brand name and source from its existing vendors.
Amazon has been nibbling around the edges of both brick-and-mortar and the grocery market lately with the rollout of its bookstores and the debut of Amazon Fresh Pickup, which allows Prime members to shop for groceries online and pick them up at drive-through locations.
This move, however, is Amazon’s first major play in physical stores, and it puts it in direct competition with Walmart and Target, which have been battling for grocery dominance. For Target that has meant putting more emphasis on communicating its low-price position. With the acquisition of Jet.com, Walmart has been strengthening its e-commerce business, with online grocery a top concern. Even chains like Meijer and Wegmans are teaming up with delivery companies to compete.
Meanwhile the sector is getting squeezed by an influx of value-based German hypermarkets, with Lidl and Aldi both making major plays for the U.S. Aldi said last week it would invest $3.4 billion to expand from 1,600 stores to 2,500 by the end of 2022, making it the third largest grocery store in the U.S. For its part, Lidl is just starting to carve out its place in the American market with 20 stores set to open this summer and plans for 80 more along the East Coast in a year. Both stores, which dominate the European markets, are poised to take share here based on their focus on low-priced, private-label goods. Both Aldi and Lidl also offer apparel, home goods and other necessities outside of the traditional grocery assortment.
The acquisition just comes as tensions between Whole Foods and its investors had come to a boil. The food chain’s co-CEO and co-founder John Mackey, who will stay on under Amazon, recently called activist investor Jana Partners “greedy bastards” in a profile in Texas Monthly. Mackey had been receiving pressure from the firm to sell, which he said was only in Jana Partners’ best interest.
No word on how Amazon will transform Whole Foods or its plans to tie its online business into these physical locations.
The transaction is subject to approval by the grocer’s shareholders as well as the typical regulatory approvals. It’s expected to close by during the second half of 2017.
Whole Foods launched in 1978 and today has 465 stores in the U.S., Canada and the UK. In FY16, the company posted sales of $16 billion.
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