By now, you’ve likely heard that Amazon made its largest acquisition to date last Friday with the purchase of Whole Foods Market for $14 billion. The acquisition, likely trigger a major technological breakthrough for the food industry, sent grocery stocks plummeting. Amazon’s purchase of Whole Foods doesn’t just change the grocery industry, it changes the entire consumer shopping experience.
The deal is beneficial for both parties, as Amazon has openly been attempting to break into the grocery industry and Whole Foods has proven to be in need of financial help. Whole Foods’ stock price and revenue have consistently declined since 2012, and our data shows a drop in three major spend categories over the past three years.
Food Delivery Service
Now more than ever, shoppers value their time. Long live the days of spending hours at the mall or in major retail stores. The recent growth of meal delivery services such as HelloFresh has proven that adding food to the list of deliverable items is something that consumers respond to.
AmazonFresh was Amazon’s first attempt to break into the digital grocery game. It wasn’t as successful as they had hoped, which has led Amazon to Plan B: buy out an already established grocer and offer benefits to consumers that they won’t get anywhere else. Whole Foods will continue operating under its own name, but the benefits will be available through Amazon Prime subscriptions.
Whole Foods gains the ability to deliver direct to consumers, while Amazon gains physical real estate in major markets. Amazon didn’t just acquire Whole Foods, it acquired 431 “upper-income, prime location distribution nodes” as stated by Denis Berman, Financial Editor at WSJ.
Implications for Competitors
If all goes according to Amazon’s plan, the disruption of the grocery store industry will also lead to implications for the producers and distributors of their products. As consumers gravitate towards the convenience and accessibility of online grocery shopping, competitors will be forced to slash prices in order to stay afloat, thus cutting the profits significantly for distributors.
Amazon’s Unique Advantage
Amazon holds a unique advantage over many of its competitors in that it can survive losing money in one particular industry for what may seem like a long stretch of time, because it will continue thriving in other industries, keeping the entire business afloat. What this means is that while Amazon may not immediately dominate the grocery game, it can continue to operate selling inexpensive food items while bringing in revenue from, say, books and entertainment.
What This Means for B2B Creditors
Creditors within the food & beverage industry will need to proceed with caution as they choose which grocery stores to do business with. If sales are dipping, DBT will likely increase while the average trade value and sale amount will decrease. Creditors considering working with Whole Foods competitors will need to review credit limits regularly and adjust where necessary while Amazon/Whole Foods potential industry dominance unfolds.