Amazon.com shocked the grocery industry on Friday when it made the announcement it is planning to acquire Whole Foods Market, which instantly introduced additional uncertainty into a sector that is already grappling to maintain pace with growing competition.
The deal that totals $13.7 billion heightens a battle for years between Internet behemoth Amazon and retail giant Walmart, which recently increased its operations online with a purchase for $3.3 billion of an online competitor of Amazon.
Amazon, based in Seattle, has for many years tested grocery innovations in quiet areas but instantly could have over 460 stores across the U.S. Britain and Canada.
A CEO of an investment bank in London said the deal should leave little doubt Amazon is dead serious about taking the lead in every aspect of retail.
The analyst added that Amazon is saying that if other retailers are tooling up with technology it will help itself with physical presence along with a high-street brand name.
Although Amazon was quiet Friday about plans it has for the organic and natural food stores, a prototype store the company opened earlier this year provides some clues to the company’s vision: shops that are cashier-less where the purchases get tallied automatically via an app rather than at checkouts
In separate action, Amazon earlier this week started selling a wand that is able to ready the barcodes of grocery items and order household essentials.
News of this deal sent rival grocers shares plunging as investors attempted to digest all the implications of a grocery chain owned by Amazon.
SuperValu has 2,000 stores in the U.S. and it took a big hit with its stock plunging 14%. Kroger, which last year had been rumored to be considering taking over Whole Foods, fell 9%.
In contrast, Whole Foods shares were up an incredible 30%, and Amazon stock move up 2%.
However, several analysts say that Amazon will likely have to face substantial challenges in its expansion into a business that is known to be difficult with profit margins that are very low.
Whole Foods and Amazon are vastly different entities as one is a tech company that earns its customers using sophisticated algorithms with low prices, while the other is known for the high prices it charges for its specialty foods and a workplace culture that pays cashiers as well as other workers very well.
Therefore, some analysts call it a contradiction to combine high-end specialty meats and produce with a provider of almost everything at low prices.