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Amazon's offer represents a 27 percent premium to Whole Foods' closing price on Thursday. With Whole Foods shares trading around Amazon's offer price, investors appear to be speculating that another suitor could make a play for the grocery chain. Among those that could potentially make a bid are Wal-Mart, which has been focusing its deal making on bulking up its digital business, and JAB Holdings, a private equity player that has been shifting its focus to restaurants and food and beverage businesses.
Whole Foods has been under pressure from activist investor Jana Partners and money manager Neuberger Berman, which have called on Whole Foods to sell itself. The investors have criticized Whole Foods for its poor performance and have suggested the chain could be merged with another grocer.
Whole Foods attempted to placate Jana last month May by shaking up its board of directors. However the hedge fund balked, saying that newly appointed board members did not have the grocery store experience to spark a successful turnaround. Mackey will remain CEO of the grocery store chain after the deal closes, and the store will continue to operate under the Whole Foods brand. Amazon has long been pushing to expand its online grocery business, seeing it as an emerging opportunity.
Currently, few people purchase their groceries online even as more shoppers switch to buying other goods that way.
About 12 percent of U. Millennials, in particular, were the biggest group of consumers to use online grocery shopping last year. Older millennials, over age 25, were twice as likely to buy online. This generation is starting to get married and have children and will be growing their grocery spend over the next decade.
Some analysts had seen Wal-Mart being best positioned to compete in the next phase of growth in online shopping because it was going to be able to use its vast footprint of stores to help distribute products ordered online.
Also, Wal-Mart has been successful with its so-called click-and-collect model, where shoppers order online but stop by the store to pick up their orders. Meanwhile, Whole Foods has been seen as a laggard in the online shift. Its stores tend to be in urban markets where there was an overlap with Amazon Fresh and Prime Now.
The companies differ in consumers' perceptions on price.
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Amazon is often associated with great value while Whole Foods has often been called "whole paycheck," due to its higher-priced organic goods. News that the e-commerce giant is buying Whole Foods sent grocery stocks reeling.
Kroger was down nearly 11 percent in afternoon trading. Supervalu dropped 13 percent while Costco dropped 5. Now, we can see in hindsight that its recent dithering around the brick-and-mortar experience, as an experiment, was only a rumbling of the seismic event in the offing. Friday's grocery stocks declines add to losses on Thursday, when they sold off after Kroger's earnings revealed just how competitive the sector had become with food price deflation pressuring profit margins.
Not only are grocery chains competing with each other, but also contend with nontraditional grocers like Target and Wal-Mart, said Mickey Chadha, Moody's vice president. Now, these chains will face Amazon wh ich has the means to price its goods aggressively.
The deal also throws into question a Sprouts-Amazon partnership for home delivery of groceries in certain markets. That partnership started in California and eventually was expanded to other markets, including Austin, Texas — Whole Foods' hometown. Shares of Amazon were up about 3 percent following the news but were up 2. The deal is expected to close in the second half of the year.
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Register Log In Profile Email Preferences PRO Sign Out. Consumer Retail Autos Food and Beverage Restaurants Fashion Goods Retail Report. John Mackey will remain CEO of the grocery store chain. The deal is expected to close in the second half year. Amazon-Whole Foods deal marks beginning of the end of traditional retail: This will likely lead to consolidation in the supermarket space, Chadha said.
Sprouts wasn't immediately available for comment. An inside look at how Amazon Prime Now delivers food and household items in less than two hours. To view this site, you need to have JavaScript enabled in your browser, and either the Flash Plugin or an HTML5-Video enabled browser. Download the latest Flash player and try again. YOUR BROWSER IS NOT SUPPORTED.
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