Australian retail stocks are getting hosed after Amazon's huge grocery chain acquisition

Remigio Civitarese
Giugno 19, 2017

Executives at Coles and Woolworths were reeling at the weekend after Amazon bought an American grocery chain, in a move which has Australian retailers wondering whether fresh food will remain their stronghold when the online giant starts trading Down Under.

"Amazon is committed to cracking the grocery market, and a business like Whole Foods brings with it numerous crucial ingredients the e-commerce giant has been missing in its other forays into food and drink". Thus, it is no longer about the forte in the offline space or the dominance in the e-commerce world but who strikes the flawless balance between the offline and online to reign the sector.

Whilst Whole Foods' share price rallied 28% to the Amazon bid price, USA grocers such as Walmart, Kroger and Costco fell between 5% and 10% and the selloff continued into Europe with 3% plus falls for Tesco, Sainsbury's and Carrefour.

Amazon will likely be able to achieve better pricing for its grocery goods, as it has done in other business sectors.

"They are on offence and that is a good position to be in", Binder said, referring to Wal-Mart. The market believes that Amazon has flanked Walmart in one of its most important sources of revenue. The Whole Foods can make Amazon run its grocery delivery service, Amazon Fresh, more seamlessly. The hurdle in the case of Whole Foods could be whether another company will bid well above the $42 Amazon has offered for Whole Foods. The retailer is also going after Amazon's higher-income shoppers with a recent string of acquisitions of online brands such as Moosejaw and Modcloth and on Friday, menswear e-tailer Bonobos. While Amazon could have built up its presence organically, it would have been both costly and time-consuming to bring the business to scale. WholeFoods stores could also serve as pickup points for easier transportation of Amazon deliveries in neighborhoods.

Roger Davidson, who oversaw Wal-Mart's global food procurement and now is president of Oakton Advisory Group, said the deal will reduce Wal-Mart's brick-and-mortar advantage.

"Government antitrust enforcers should block this merger", said Barry C. Lynn, director of the Open Markets Program at New America, a Washington think tank. And when it comes to labor practices, the company's CEO, John Mackey, has always been hostile to unions, but working at a Whole Foods is still a decent gig.

He added: "Whole Foods Market has been satisfying, delighting and nourishing customers for almost four decades - they're doing an fantastic job and we want that to continue".

Whole Foods 365 offers private-label goods and lower prices than typical Whole Foods stores, and is targeted at younger, value-conscious shoppers.

"That (Whole Foods 365) may become a big problem for Wal-Mart", Grant said. Last year, Amazon accounted for 43% of online sales in the USA and 53% of the growth in online sales, according to data from Slice Intelligence. Wal-Mart reported $6.9 billion in cash and equivalents and $20.9 billion in free cash flow at its year ended January 31.

"Acquiring Whole Foods made a ton of sense", said Bryan Eisenberg, New York Times best-selling author and Partner of Buyer Legends, in an interview with Retail TouchPoints.

In exchange for this strategic deviation, Amazon gets access to a slew of wealthy customers and information about their food-buying habits.

"Dominant players like Walmart, Kroger, Costco and Target now have to look over their shoulders at the Amazon train coming down the tracks", said Moody's lead retail analyst Charlie O'Shea.

In fiscal year 2016, the Company had sales of approximately $16 billion and has more than 460 stores in the United States, Canada, and the United Kingdom. It is not strictly limited to food but to all groceries instead, and it simply allows for a wider selection and faster delivery time of such products than normal Amazon.

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