Amazon is acquiring Whole Foods Market, snapping up the 465-unit chain for $13.7 billion and dramatically changing the retail landscape yet again. Experts expect the deal to kick off a wave of consolidations and leave grocers, and Walmart, under more pressure to compete.
"For Amazon, Whole Foods fulfills, at a stroke, its ambition to be a serious player in the grocery market," wrote Neil Saunders, managing director of GlobalData Retail, in a research note.
While Amazon has been increasing its marketing spending in its quest for retail domination—last year, the Seattle-based e-commerce giant spent $2.6 billion on U.S. advertising, or 30% more than 2015, according to Ad Age's Datacenter—the Whole Foods deal will give Amazon a new marketing edge with brick-and-mortar locations.
Until now, Amazon's main retail disadvantage was its lack of stores, though the brand has introduced its own bookstores and digital pilots like checkout-free Amazon Go. Unlike Walmart, with its 11,700 stores, and Target, with its 1,800, the brand had no way of reaching a massive number of consumers in the physical realm. For main rival Walmart, especially, its stores help to advertise the brand to shoppers.
"A lot of people who use Walmart will go to Walmart stores and see products—that's almost a form of marketing for Walmart," said Saunders.
Now, in addition to the built-in advertising of storefronts, Amazon will also gain an established perishable supply chain and sourcing operation, something its Amazon Fresh grocery division has struggled with, according to Keith Anderson, senior VP-strategy and insight at e-commerce analytics firm Profitero. He added that Whole Foods' locations, primarily in coastal states with affluent shoppers, will also offer a new advantage. In addition, the digital innovations of Amazon Go, still in infancy, could come into play soon in Whole Foods locations.
"It gives Amazon both the perishable supply chain and the distribution presence in many of the same high-density, high-income, high-education metro areas that [the brand] has historically been pursuing for its core grocery business," said Anderson.
As Amazon gains ground with the grocery sector—a $611.9 billion industry, where Whole Foods holds a 2.7% market share, according to Ibis World—retail experts expect more dominance, and possibly acquisitions, to come. Amazon is already poised to surpass Macy's this year as the largest seller of apparel in the U.S. and has made strides in growing its fashion business, for example.