What's going on?
Ecommerce giant Amazon is making a big jump into bricks-and-mortar retail – a business which it has spent more than twenty years disrupting. On Friday, it announced that it had agreed to buy American grocery chain Whole Foods for almost $14 billion! (tweet this)
What does this mean?
For one, the deal is about Amazon becoming a major player in groceries, which is the biggest market segment within retail. It’s hoping that the groceries business will be a powerful driver of its revenue growth in future years. But it’s also about gaining valuable distribution space in major cities by acquiring Whole Food’s locations. That should help Amazon build out its delivery capabilities and establish even greater leadership in the broader ecommerce market (e.g. pairing an order for diapers with fresh eggs and getting it to you on the same day).
Why should I care?
For markets: The stock prices of other grocery chains are taking a hit on the news.
Grocery chains have had a rough time in recent years with increased competition and shrinking profitability. Whole Foods itself has seen its stock fall by almost 50% since its 2013 peak, as others muscled in on its “natural and organic” focus. Investors, apparently, think the aggressive entrance of the world’s biggest ecommerce player is going to heap on the pain for the overall market: stock prices of other grocery chains, like Kroger, Costco and Walmart were all down significantly on Friday.
The bigger picture: It’s a victory for the omni-channel approach to retail – at least in the short term.
There’s some irony to the fact that, if this deal is completed, Amazon’s biggest acquisition to date will be buying a bricks-and-mortar retail chain. One argument is that even Amazon realizes that customers don’t want to buy everything online, and perhaps bricks-and-mortar stores will remain valuable so long as they can also have an online offering. That may be true. But, if the acquisition is primarily about buying urban distribution centers to enhance its online business, then perhaps traditional retail stores will, in fact, become irrelevant.