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Amazon's $14-Billion Grocery Deal a 'Threat' to Food Retailers

19 June 2017

Amazon would also look to change Whole Foods' inventory, introducing its own private-label products to replace items deemed too expensive to have mass appeal, the person with knowledge of the matter said.

In Whole Foods, Amazon is acquiring a company that has recently come under pressure from investors for its lagging performance. Target and Aldi have also been introducing more discounts to compete with chains such as Wal-Mart, which are known for low prices. But competition with other organic grocery stores has become pretty stiff in recent years.

Following Amazon's move to plant a bigger stake in the food-selling business, shares of Walmart tumbled 4.6%, making it the biggest loser in the blue-chip Dow Jones industrial average.

And shoppers are a picky bunch, saying they would be looking for the best prices, good quality and convenience when it comes to online food delivery.

Wal-Mart may be ready.

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Amazon already offers grocery-delivery services in five markets, but analysts say expansion is tough because its current distribution centers are set up for dry goods, not perishables.

Yes, we'll continue to see prepared foods in demand. The 35-year-old Army aviator, who's stationed at nearby Hunter Army Airfield, said for non-persishable items - and for other products when she's busy - she relies on the mobile app Shipt, which for $100 per year allows her to schedule home delivery of groceries from the local Publix. It now delivers fresh food on demand and opening test stores in Seattle.

"It's pharmacy. It's having the ability to put stores that are similar to Apple stores inside Whole Foods", he said.

"I think this acquisition is a concern", he said.

When Amazon approached, Whole Foods turned again to Evercore. It implies a trailing 12-month price-to-earnings multiple for Whole Foods of 31 times, versus a 14.4 average for the S&P 500 Food Retail index. Whole Foods shares rose above the offer price to close at $42.68. Amazon could provide the financial capital and tactical ability to build that into something big.

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One theory about Amazon's growth is that it has costs tens of thousands of traditional retail jobs and cut billions of dollars from the market value of publicly traded companies in the industry.

Ladd, who left Amazon in March, said Amazon will seek to eliminate checkout lines by using technology that automatically scans goods as customers add them to their shopping carts.

The same is, however, expected to change once the acquisition is completed, according to Bloomberg.

"Large grocery stores like Kroger and Albertsons will be especially affected", said Madeline Hurley, senior analyst at IBISWorld. Amazon is also experimenting with a "click and collect" model that lets customers buy groceries online and pick them up at new AmazonFresh locations.

Whole Foods Market will continue to operate stores under the Whole Foods Market brand and source from trusted vendors and partners around the world.

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