Amazon’s $13.7 billion deal to purchase Whole Foods won’t close until the second half of this year, but grocery stores are already feeling the pain.
Shares of some major retailers that have entered the grocery world also
dropped. Target and Walmart were each down 5 percent.
Meanwhile, Whole Foods stock soared on the news, jumping 29 percent. Amazon closed up 2 percent.
(Amazon’s chief executive Jeffrey P. Bezos owns The Washington Post.)
Some investors may be wondering whether Amazon could disrupt grocery stores the way it upended the bookstore business. The deal could put Whole Foods in a position to dominate two areas that grocery stores have been focusing on to gain new customers and increase revenue —convenience and high quality organic food, says J.P. Eggers, an associate professor at NYU Stern who focuses on tech and retail.
Grocery stores are under more pressure to compete based on convenience, especially as more retailers and startups introduce food options such as meal kits, low-cost snacks and organic groceries, according to a report released earlier this year by Jones Lang LaSalle, a commercial real estate firm.
Amazon is already playing with innovative ways to make grocery store runs more convenient. The online giant last year declared its plans to open a physical grocery store called Amazon Go, a market without cashiers where consumers would be automatically charged based on the items they placed into their shopping bags. But the opening of the first store, which was supposed to happen in March, was delayed because of technical issues, according to the Wall Street Journal.
Grocery stores, which have low profit margins, have also been competing more intensely when it comes to price, especially of organic and natural foods. Whole Foods is courting the discount shopper with its lower cost brand 365. Target and Aldi have also been introducing more discounts to compete with chains such as Walmart, which are known for low prices.
By coming under the Amazon umbrella, Whole Foods may develop new methods for distributing food that could also allow it to reach more customers, Eggers says. A strategy that lowers the prices on its high quality organic products could help it win more market share away from competitors, Eggers says. It could also put pressure on other stores to lower their prices as well, he says.
Other stores are testing out tech-savvy approaches. For example, Walmart has a “Scan and Go” pilot at one store where consumers can use an app to scan items as they shop and then pay using their phones, according to the JLL report. At some of the Whole Foods 365 locations, the grocer’s discounted brand, consumers can use iPads to order food or find a bottle of wine. These tech solutions are likely to become more common this year, according to the JLL report.
Several retailers have also been experimenting with ways to get people to buy groceries online, a habit that still hasn’t fully taken off. Walmart, for instance, is trying to take advantage of its brick-and-mortar footprint through a service where people can buy groceries online and pick them up in the store.