Two Lucrative Ways to Play the Amazon/Whole Foods Buyout Today

Inc.'s $13.7 billion bid for Whole Foods Market Inc. sent shock waves across the retail industry: Investors and rivals suddenly had to ponder how quickly the dominant online merchant might turbocharge a struggling chain, known for pricey hand-butchered meats and $30 emu eggs, to challenge US supermarket leader Wal-Mart Stores Inc.

The move by Amazon to offer live sports online is just one of the Seattle-based online retailer's recent moves into new markets.

While the potential deal has ratcheted up uncertainty for Whole Foods and its workers, it's clear that something needed to change. Indeed, packaged-goods producers' businesses are already under stress, with manufactured-food volumes at large companies declining 4% this year, as consumers seek out less-processed fare. Online grocery has a long way to go in the US before it becomes fully adopted by consumers. "The smaller regional supermarket chains and independents will bear the most pain". It does well if you live in the right place. It is enmeshing itself in its customers' lives: each new service, from streaming video to its Alexa virtual assistant, makes it more integral to a person's day. "It's a bit unsettling". "It puts a huge amount of pressure on branded food sales". "We do have an aging population". The company will still need people to prepare the meals, for example, even if it won't need as many cashiers. It's already the top grocery chain in the United States by a long-shot, with 21% market share, compared to its next-closest competitor, Kroger, which claims a 10% share of the grocery market in the US. Whole Foods will no longer have a listed stock after the deal is completed, which is expected to happen in the second half of this year. "Amazon is placing its bet on the future of the food industry", says Errol Schweizer, a former Whole Foods executive who is now an industry adviser, "and they see Whole Foods as the leadership". This has seen the share prices of incumbent retailers in Amazon's core categories of electronics and fashion negatively impacted over the last 6 to 9 months. Even with the addition of Whole Foods, Amazon accounts for just 4% of US grocery/consumables sales ($45 billion) compared with Walmart/Sam's 18% share ($228 billion), with Kroger at 7%, and Costco and Albertson's/Safeway each at 4%. The app allows customers to order groceries online and get them shipped to their home.

"It's an experiment for everyone - I don't know if anyone has figured out yet how to use a store to service online customers at massive scale". However, after the acquisition of Whole Foods, if Amazon can offer a comparable service to its Prime customers and leverages Whole Foods' expertise in organic produce, Costco could run into some trouble.

Among Mr. Bezos' most intriguing ventures of late is an attempt to crack the grocery delivery business, which has thus far not yielded enormous success.

While investors are digesting the speculation we believe it is premature to put the nail in coffin of the Walmart and Kroger grocery business

In the short term, Amazon's acquisition of Whole Foods does not do anything obvious to improve the prospects for either company in grocery.

Buying Whole Foods gives Amazon 465 premier locations immediately. It also had announced a board shake-up and cost-cutting plan amid pressure from activist investor Jana Partners.

What's interesting is that Amazon's message here is likely getting lost to other grocery retailers. It could have built up its groceries business without acquisitions, said Neil Saunders, managing director of GlobalData Retail, but that would have been costly and time-consuming. Whole Foods and Amazon did not immediately respond to requests for comment.

In addition, Whole Foods has a strong brand and above-average income clientele willing to pay a premium for groceries - and perhaps much else.

Grocery shopping is likely to get more sensory, as retailers try to make stores a draw beyond just picking up staples.

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