Homepage / Australian Finance / An industry shudders as Amazon buys Whole Foods for $13.7bn
Amazon says this Prime Day was its biggest shopping event ever Kudlow says President Trump is 'so dissatisfied' with China trade talks that he is keeping the pressure on As stocks regain their footing, an ominous warning looms Goldman Sachs downgrades Clorox to sell, says valuation is 'unsustainably high' How Satya Nadella has spurred a tripling of Microsoft's stock price in just over four years Kudlow says economic growth could top 4% for 'a quarter or two,' more tax cuts could be coming The one chart that explains Netflix’s stunning comeback US housing starts plunge 12% in June to a nine-month low Aerospace titans Boeing and Airbus top $110 billion in orders at Farnborough Target uses Prime Day to its advantage, logging its 'biggest online shopping day' so far this year Billionaire Marc Lasry sees bitcoin reaching up to $40,000 as it becomes more mainstream and easier to trade These are the 10 US airports where you're most likely to be hacked Amazon shares slightly higher as investors await Prime Day results Wreck of Russian warship found, believed to hold gold worth $130 billion A bullish ‘phenomenon’ in bond market is weeks away from fading, top credit strategist says Stocks making the biggest moves premarket: MS, GOOGL, TXN, UAL, NFLX & more Twitter shares up 50% since late April means most upside priced in, analyst says in downgrade EU fines Google $5 billion over Android antitrust abuse Mortgage applications fall 2.5% as buyers struggle to find affordable homes America may not have the tools to counter the next financial crisis, warn Bernanke, Geithner and Paulson Investors are getting spooked as the risk of a no-deal Brexit rises EU expected to fine Google $5 billion over Android antitrust abuse Ex-FBI chief James Comey urges Americans to vote for Democrats in midterm elections Elon Musk apologizes to British cave diver following baseless 'pedo guy' claim Disney, Comcast and Fox: All you need to know about one of the biggest media battles ever Xiaomi shares notch new high after Hong Kong, mainland China stock exchanges reach agreement The trade war is complicating China's efforts to fix its economy European markets set for a strong open amid earnings; Google in focus Hedge fund billionaire Einhorn places sixth in major poker tournament The biggest spender of political ads on Facebook? President Trump Asian stocks poised to gain after Fed's Powell gives upbeat comments; dollar firmer Stocks are setting up to break to new highs Not all FAANG stocks are created equal EU ruling may be too little, too late to stop Google's mobile dominance Cramer explains how Netflix's stock managed to taper its drop after disappointing on earnings Airbnb condemns New York City's 'bellhop politics,' threatens legal retaliation Amazon sellers say they were unfairly suspended right before Prime Day, and now have two bad choices Investor explains why 'duller' tech stocks can have better returns than 'high-flying' tech names Elon Musk is 'thin-skinned and short-tempered,' says tech VC Texas Instruments CEO Brian Crutcher resigns for violating code of conduct Google Cloud Platform fixes issues that took down Spotify, Snapchat and other popular sites Uber exec: We want to become the 'one stop' transportation app 'What a dumb hearing,' says Democrat as Congress grills tech companies on conservative bias Amazon shares rebound, report says Prime Day sales jumped 89 percent in first 12 hours of the event How to put your medical history on your iPhone in less than 5 minutes Investment chief: Watch these two big events in 2018 Even with Netflix slowing, the market rally is likely not over Cramer: Netflix subscriber weakness debunks the 'sky's the limit' theory on the stock Netflix is looking at watch time as a new area of growth, but the competition is stiff Why Nobel laureate Richard Thaler follows Warren Buffett's advice to avoid bitcoin Rolls-Royce is developing tiny 'cockroach' robots to crawl in and fix airplane engines After Netflix plunge, Wall Street analysts forecast just tame returns ahead for the once high-flying FANG group Roku shares rise after analyst raises streaming video company's price target due to customer growth China is investing 9 times more into Europe than into North America, report reveals Amazon says US Prime Day sales 'so far bigger than ever' as glitch is resolved Netflix is on pace for its worst day in two years US lumber producers see huge opportunity, rush to expand San Francisco to consider tax on companies to help homeless Homebuilder sentiment, still high, stalls as tariffs, labor and land drive up costs Powell backs more rate hikes as economy growing 'considerably stronger' Netflix history is filled with big stock declines – like today – followed by bigger rebounds Intel shares get downgraded by Evercore ISI due to rising competition from Nvidia, AMD Petco aims to reinvent the pet store with something you can't buy online Genetic testing is coming of age, but for consumers it's buyer beware Tech 'FAANG' was the most-crowded trade in the world heading into the Netflix implosion, survey shows Netflix weak subscriber growth may indicate a 'maturity wall' that could whack the stock even more: Analyst This chart may be predicting the bull market's demise Wall Street says Netflix's stock plunge is a ‘compelling’ buying opportunity because the streaming giant ‘never misses twice’ Tesla sinks after Musk tweets, again Boeing announces new division devoted to flying taxis Stocks making the biggest move premarket: NFLX, UNH, GS, AMZN, WMT & more Deutsche Bank downgrades Netflix, but says big subscriber miss is not 'thesis changing' IBM is experimenting with a cryptocurrency that’s pegged to the US dollar North Korea and Zimbabwe: A friendship explained Virgin Galactic spinoff Orbit to launch rockets from the UK with space deal Artificial intelligence will create more jobs than it destroys? That’s what PwC says ‘Treasonous’ Trump and ‘Putin’s poodle:' Scathing headlines follow the Trump-Putin summit China’s fintech companies offer ‘enormous’ opportunity, investment manager says Trump's performance at summit with Putin was 'unprecedented,' experts say Walmart and Microsoft link up on cloud technology as they both battle Amazon European stocks seen mixed amid earnings; Fed’s Powell to address Congress How I knew I should quit my day job and run my start-up full-time: Viral website founder China's stocks have been trounced, but the trade war may ultimately be good news for those shares Billionaire tech investor Peter Thiel bets on crypto start-up Block.one Asian shares subdued open after mixed close on Wall Street; energy stocks under pressure Amazon cloud hits snags after Amazon Prime Day downtime Netflix isn't doomed by one quarter unless people start questioning the long-term investor thesis Tech stocks set to sink on Tuesday after rough evening for ‘FANG’ Netflix plummets after missing big on subscriber growth This wristband lets humans control machines with their minds The U.S. has a rocky history convincing Russia to extradite computer criminals Amazon suffers glitches at the start of Prime Day Jeff Bezos is now the richest man in modern history 'The United States has been foolish': Read Trump and Putin's full exchange Goldman Sachs recommends these 5 highly profitable companies — including Nvidia — to combat rising inflation Goldman Sachs releases 'tactical' stock picks for this earnings season Three red flags for Netflix ahead of its earnings report The bond market may be raising recession fears, but don't expect one anytime soon Cramer: Banks are 'making fortunes' but are still as hated as they were during the financial crisis Putin told Trump at summit: Russia never meddled in US election

Australian Finance

An industry shudders as Amazon buys Whole Foods for $13.7bn

AMAZON announced on June 16th that it would pay $13.7bn to buy Whole Foods, a grocer known for its organic produce. On the face of it, the purchase might not seem to upset the grocery cart, either for Amazon or for the supermarket business. Amazon controls a measly 0.2% of America’s grocery market; Whole Foods has just 1.2%, according to GlobalData, a research firm and consultancy. By Chinese standards, Amazon looks slow: Alibaba, another e-commerce titan, bought a 32% stake in a Chinese grocer last year.

Nor is Whole Foods a juggernaut. It has about 450 stores in America, Britain and Canada, but American shoppers are now buying a wide range of organic foods at other grocers, without having to put up with Whole Foods’s steep prices or its hipster clientele.

  • Will the US Open be remembered for Brooks Koepka or Erin Hills?

  • Finland tests an unconditional basic income

  • Why nobody knows how many Nigerians there are

  • Italy’s enduring love affair with Emilio Salgari

  • Three South American countries hold over half the world’s lithium

  • New technology is eroding your right to tinker with things you own

Nevertheless, the deal marks a new era for Amazon. It has run a few experiments in physical retail, including bookstores in Chicago and in New York. In Seattle it is testing a small grocer, Amazon Go, where consumers can pick up food without having to stop at any checkout counter. Buying Whole Foods is a venture into brick-and-mortar shops on a different scale. The deal is ten times larger than any the e-commerce giant has pursued to date (Twitch Interactive, a gaming site bought in 2014, for example, cost less than $1bn).

That its first big deal in physical retail is a grocer underlines how successful the company has been in selling other types of goods online. Amazon has no need to buy a chain of electronics stores, for instance; it has already bulldozed into that category. Some clothing shops had predicted that consumers would never want to buy online—surely people would want to test a frock’s fit in stores, they argued. It turns out that many consumers do not. In 2016 a fifth of American clothes and accessories were bought online, according to Cowen, a financial-services firm.

Selling fresh food through the internet is a different story. E-commerce accounts for just 2% of America’s food-and-beverage sales. Even as Amazon has raced into other segments of goods, it has only tiptoed into grocery. Amazon Fresh, a grocery-delivery service that it started ten years ago, is still in only a handful of cities. (Prime Now, its two-hour delivery programme launched in 2014, is already in 31.) That’s because grocery’s margins are low, even when sold in stores, and its goods devilishly hard to deliver. Bananas bruise, meat rots, ice cream melts and a gallon of milk, if packed at the top of a grocery bag, will crush the muffins placed below.

Amazon has tried to attack these challenges, using machine learning, for example, to distinguish ripe strawberries from mouldy ones. But the acquisition of Whole Foods marks the start of something new, with the combined firms likely to have an outsized impact.

The most straightforward next step is for Amazon to unleash its usual arsenal of cash and innovation to enhance Whole Foods’s existing offering. For example, it might improve Whole Foods’s delivery service, now run by a startup called Instacart, or deploy the “Amazon Go” technology that lets customers leave the store without checking out.

Running Whole Foods, in turn, will help Amazon better understand and expand its overall grocery business, online and off. Whole Foods has a fantastic cold supply chain, which immediately gives the Amazon Fresh model a big boost, says Paul Beswick of Oliver Wyman, a consultancy. Whole Foods will also give Amazon more data on how consumers shop, how to spot promising local brands and how to expand private-label goods. Whole Foods’s store brand could in future be sold on Amazon.com. As with most of Amazon’s new ventures, the company will probably accept slightly lower margins and pursue a bevy of experiments, gathering data as it goes, then scale up the few that work. Years ago a deal that gave Amazon less than 2% of a market might not have raised eyebrows. Now competitors know Amazon well enough to be terrified.

The acquisition is troubling both for food startups such as Instacart and for big grocers. Walmart, with about 15% of the grocery market, remains formidable. Last year it paid $3bn for Jet.com, a challenger to Amazon. It has poured its cash into helping shoppers order food online and pick it up in stores. But the battle between Walmart and Amazon just intensified. Other grocers are even more vulnerable. They have struggled to keep up as Walmart cuts prices and competition online increases. On June 15th Kroger, the country’s second-biggest chain, reported declining like-for-like sales. In the hours after the deal was announced, shares for Walmart, Kroger and other retailers plunged.

The deal may spell trouble for other types of retailers, too, from home-goods stores such as Bed Bath & Beyond to drug stores such as CVS, sellers of detergent and other household products. Amazon is in the business of changing customer habits: once a shopper gets used to buying goods from Amazon, usually after joining its “Prime” free delivery programme, that shopper is likely to buy more and more goods from Amazon. Morgan Stanley estimates that those who subscribe to Prime spend at least three times as much on Amazon as those who don’t. That shoppers stock up on groceries so often explains much of the appeal of the market to Amazon. If Amazon can enmesh itself in that frequent habit of buying milk and bread, experience shows that customers will turn to Amazon for other types of goods, too.

There are already protests that owning Whole Foods will give Amazon too much power. The company accounts for about half of all new spending online in America. Amazon has already spread its tentacles into many parts of the economy, from retail to cloud computing and from entertainment to advertising.

However regulators are unlikely to intervene. The deal, after all, gives Amazon less than one-fiftieth of the grocery market. Indeed, it seems far more probable that a company such as Walmart, wary of Amazon’s dominance, might swoop in and make Whole Foods a higher offer (Amazon is paying about a 27% premium to the stock’s closing price on June 15th). Barring that, the deal will likely go through, Amazon expects, within the next six months.

Source: economist
An industry shudders as Amazon buys Whole Foods for .7bn

Comments are closed.