Amazon's Whole Foods deal highlights appeal of physical stores

By Oscar Rousseau contact

- Last updated on GMT

Whole Foods Market has over 460 stories across the US, Canada and the UK
Whole Foods Market has over 460 stories across the US, Canada and the UK
Amazon's move to buy Whole Foods Market for $13.7bn represents a 'tacit admission' that online-only food retailing is still difficult, according to a UK-based analyst.

Analyst Fraser McKevitt, head of retail and consumer insight at UK-based Kantar Worldpanel suggested the deal is "a tacit admission from Amazon that food retail is incredibly difficult as a purely online player. 

In a statement, he said: "Online grocery shopping has grown rapidly and may seem quite well established, but it is still a fairly niche option for food shopping: only just over a quarter of the UK population shopped online for groceries during the past year, and many consumers still don’t do so regularly.​"

Still, McKevitt added Amazon’s acquisition of the bricks-and-mortar firm would give the digital-first business “a crash course in how food retailing really works on the ground.​”

The e-commerce firm’s planned acquisition of the organic foods business, which has more than 460 stores in the US, Canada and the UK, comes as Amazon continues to experiment in the grocery sector after the launch of its fresh food delivery service in the US about eight years ago.

Amazon will buy the supermarket for $42 a share, which is 27% above the level Whole Foods Market shares closed at on Thursday.
 
Amazon’s founder and CEO Jeff Bezos said Whole Foods Market – ranked as the 28th most-admired company by Fortune magazine – was doing “an amazing job​” that the internet firm wanted to be a part of.

‘Fun to eat healthy’

Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,​” added Bezos.

Amazon CEO Jeff Bezos grew the internet giant into a billion-dollar business
Amazon CEO Jeff Bezos grew the internet giant into a billion-dollar business

 
Whole Foods Market will continue to operate stores under its own brand and will continue to source from the same vendors around the world, including its organic meat suppliers.

John Mackey will remain as CEO of Whole Foods Market and in a statement on the deal with Amazon, he said: “This partnership presents an opportunity to maximize value for Whole Foods Market’s shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers.​”

Crash course in food retailing’

The deal is still subject to regulatory approval. Both parties expect it close in the second half of 2017.

Many Whole Foods Market shops have in-store butchery counters
Many Whole Foods Market have butchers in-store who will cut and season meat for customers

Harsha Wickremasinghe, Associate at Livingstone said: "This is the clearest indication that Amazon intends to be a serious player in grocery retail - and is a significant wake-up call for grocery retailers in the North America and the UK. It also highlights that Amazon clearly believes that in order to achieve long-term success in the grocery category, it is essential to have a bricks-and-mortar presence." 
Rob Wade, consumer insight director at Europanel, said the deal raises "interesting questions about Amazon's plans for innovation and expansion."

"We know that the e-commerce giant is not afraid to invest upfront and its strengths in online retailing suggest technology could be at the heart of its future plans."

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