How will Amazon transform Whole Foods? (The 3:59, Ep. 242)

Posted June 22, 2017

That's because while online grocery sales are rapidly growing, according to the Food Marketing Institute and Nielsen, they're still only going to account for 20% of the market by 2025.

While many of Whole Foods stores are not now setup for drive-in and pickup, adding that capability would create big synergies with Amazon's e-commerce business by reducing last-mile delivery costs, says a Citigroup report published on Tuesday. Amazon invested in refrigerated distribution centers to hold items. Specifically, that means more of Amazon's own private-label grocery products in the grocery aisle, according to Bloomberg. The service, which is offered to the company's subscription Prime members for a monthly fee of $14.99, is available only in about 20 USA cities.

In the US "this adds 440 refrigerated warehouses within 10 miles of probably 80 percent of the population", said Michael Pachter, an analyst for Wedbush Securities. To remain competitive with Wal-Mart (WMT) and Kroger (KR), Amazon (AMZN) will have to slash Whole Food's (WFM) sky-high prices, leaving local business owners in the dust. She's skeptical that groceries will go purely online and thinks it'll be more of a hybrid model, where people use a mix of online ordering, restaurants and traditional grocery stores. Still, much is unknown about how the Amazon takeover will impact Whole Foods, the grocery industry, and grocery shoppers in general. Why pay for food delivery elsewhere if Amazon is cheaper and easier? These range from introducing greater automation, such as self-serve checkout, to using Whole Foods to distribute more Amazon private label brands.

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The company that's dominated mass retailing - now slides on to the next level.

"This was a very exciting announcement because I think consumers will be the ones to benefit", said Lindsay Sakraida, director of content marketing at DealNews. "We're gonna become as customer-centric as Amazon", he said.

"We will take all the capacity that the U.S. Postal Service can give us and that UPS can give us and we still need to supplement it".

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Wall Street signaled Monday that it expects a rival offer for Whole Foods to surface, and many industry and merger experts agreed. Plus, he wrote, Grubhub's delivery infrastructure could be applied to groceries.

The online retail giant's surprise acquisition of Whole Foods comes at a time when Amazon has been inserting itself into the grocery market, and Whole Foods had been cutting prices.

Milstein Properties' Michael Milstein, whose company has Whole Foods as a tenant at 1551 Third Avenue, said he sees three likely motivations for Amazon's deal, with the company possibly looking to implement one or some combination of the three. "Whole Foods is our main competitor", said Bustamante.

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