Amazon Buys Whole Foods – What The Analysts Said

Amazon Buys Whole Foods – What The Analysts Said

“Just because you’re a grocery retailer that’s been successful in Europe, it’s not a given that you’re going to be successful in the US, as exhibited by Tesco“, Mulpuru said.

E-commerce and cloud computing giant Amazon will be shelling out Dollars 13.7 billion to buy American supermarket chain Whole Foods Markets making it its largest ever acquisition, the company announced last week.

Here’s how leading retail analysts saw Amazon’s move.

By buying Whole Foods, Amazon now owns 450 grocery stores located in wealthy neighborhoods across the country.

Amazon was thought of as being interested in the highly-competitive grocery business after establishing about 31 “AmazonFresh” stores in the United States and Europe. “Broadly defined, Amazon has a large share of the online grocery business, but it is picking off one of its smallest rivals”, concluded Gandel. Gone are the fluorescent lighting, linoleum and dowdy shelves; Whole Foods nudged many of its competitors to soften the design of their interiors, hand out samples with a smile and revamp these stores into places to meet and dine, not just shop and checkout. While it won’t alter Amazon’s ambitions in digital or put a stop to innovative experiments like AmazonGo, it puts the food business on a different and steeper growth trajectory.

But clearly, Amazon was intrigued by the idea, especially given its superior supply-chain management expertise to deliver goods, and its ability to disrupt the business sectors that it enters.

But she is giving Amazon the benefit of the doubt. If Amazon can turn the Whole Foods stores into pick-up points and turn physical customers into online shoppers (even more), then it may have struck gold. The deal will add an additional $16 billion in revenue to Amazon’s already enormous top line, which is expected to hit $200 billion next year.

Inc said on Friday it would buy Whole Foods Market Inc for $13.7 billion, in an embrace of brick-and-mortar stores that could turn the high-end grocer into a mass-market merchant and upend the already struggling USA retail industry.

Amazon’s takeout price of $42 a share undervalues Whole Foods’ prospects and powerful brand, according to Rupesh Parikh, an analyst for Oppenheimer & Co. Also, it may be seeing the last mile as a real prohibition to profitability in multi-temperature goods. 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.

“With the exception of South Korea, the UK, France and China, no other market has bridged the 1% market share threshold for online grocery shopping”, he pointed out. “Having said that, there is probably no doubt that a material new ingredient has been thrown into the global grocery sector M&A melting pot”.

“That’s the fear that Amazon is going to beat everybody and do it better than everybody”. “From a credit perspective, Amazon has over $2 billion cash and investments, and leverage of under 2x at the most recent quarter end, so significant amounts of financial flexibility are clearly evident”.

For now, Bezos has yet to disclose his plan for Whole Foods. “I want to keep working”, said the worker, who did not want his name used. ‘Whole Foods Market has been satisfying, delighting and nourishing customers for almost four decades – they’re doing an awesome job and we want that to continue.

A survey conducted by research firm InfoScout also indicated that consumers in Lidl’s debut states are now shopping for groceries at Wal-Mart, and 90 percent of those customers are likely to give the new stores a try.