In June 2017, Whole Foods Market agreed to a merger with Amazon worth $13.7 billion. Amazon agreed to buy out the high-end grocery chain's stock at $42 per share. Following the news, the stocks of rival grocery chains fell by several percentage points, while the stock of Whole Foods rose as investors gauged the deal. Examine six things that experts believe may happen to the grocery sector of retail after the merger completes.
1. More Consolidation
The merger with Amazon signals more consolidation among rivals, because there is a need to diversify company holdings. Amazon's difficulty is that it lacks brick-and-mortar stores, while Whole Foods Market has a difficulty with pricing models. Amazon's acquisition helps solve both problems. Look for other discount national chains, such as Target, to make a move to acquire health food or organic stores.
2. Pricing War
Grocers already face pricing pressure from Walmart's low-cost pricing model. Whole Foods Market is trying to shed its "whole paycheck" moniker that keeps lower-end shoppers away from the store. Although Amazon may not have much say in the prices of groceries, the online giant did indicate that it may do away with the highest-priced items to try to make Whole Foods more affordable. Other grocers may feel the need to lower prices, but that could lead to disaster and possible bankruptcy as Amazon seeks a larger market share of the retail industry.
3. Amazon Products in Stores
Expect to see more Amazon private-label brands on the shelves of Whole Foods Market, and more Whole Foods brands on Amazon. The health food retailer touts its 365 brands, while Amazon has some small private-label foods it sells online. Both of these retailers should overlap and cross over into each other's retail space.
4. eCommerce Efficiency
Experts believe Amazon plans to make the brick-and-mortar stores more efficient in terms of services technology. Amazon may explore home delivery of food, using its Fresh service to allow people to buy groceries online rather than in the store and more technology in stores to make the shopping experience more personalized and easier.
5. Amazon Go
Amazon began experimenting with no checkout lines with its Amazon Go model of retail stores. The idea is that people go in the store, pick out their items and walk out the door without going through a checkout line. Amazon taps into a customer's smartphone to pay for items thanks to wireless hubs in the store. With this technology in Whole Foods Market stores, employees may repurpose their jobs to do other tasks rather than standing at a register.
6. Where No Retailer Has Gone Before
Amazon is breaking new ground with its acquisition of the leading organic food chain. This type of deal is an industry first between an online retailer and a niche grocery store. What happens next is solely up to Amazon's leadership, which is why the retail industry should closely watch the moves Amazon makes with its partner.
Whole Foods Market and Amazon combining forces signals a massive change in the grocery sector. Retailers must adapt to keep the pace or face a business model that no longer works.
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