Grocery Stocks Crash After Amazon Buys Whole Foods

Tyler Durden's picture

Whole Foods stock was halted for 'news pending'... and now we have the answer - Amazon to acquire Whole Foods Market for $42/share in an all-cash transaction valued at ~$13.7b, including Whole Foods Market’s net debt.

With 9% of the float short this stock, we can only imagine the squeeze onm this 27% premium over last night's close.

Full Statement:

Amazon (NASDAQ:AMZN) and Whole Foods Market, Inc. (NASDAQ:WFM) today announced that they have entered into a definitive merger agreement under which Amazon will acquire Whole Foods Market for $42 per share in an all-cash transaction valued at approximately $13.7 billion, including Whole Foods Market’s net debt.

“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” said Jeff Bezos, Amazon founder and CEO.

 

“Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue.”

 

“This partnership presents an opportunity to maximize value for Whole Foods Market’s shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers,” said John Mackey, Whole Foods Market co-founder and CEO.

Whole Foods Market will continue to operate stores under the Whole Foods Market brand and source from trusted vendors and partners around the world. John Mackey will remain as CEO of Whole Foods Market and Whole Foods Market’s headquarters will stay in Austin, Texas.

Completion of the transaction is subject to approval by Whole Foods Market's shareholders, regulatory approvals and other customary closing conditions. The parties expect to close the transaction during the second half of 2017.

The purchase of Whole Foods is Amazon's largest acqusition in history:

Amazon expects to finance the acquisition with debt.

  • Amazon enters into commitment letter for 364-day senior unsecured bridge term loan facility in an aggregate principal amount of up to $13.7 billion.
  • Expects to finance deal with debt financing, which may include senior unsecured notes issued in capital markets transactions, term loans, bridge loans, or any combination thereof, together with cash on hand, co says in a filing
  • Goldman Sachs, BofA-Merrill Lynch to lead debt financing

Amazon stock is up 3% on the news...

 

The sellside was delighted: here is Credit Suisse:

We view this acquisition as an offensive TAM-expansion move to accelerate its progress in the largest consumer spend category. In other words, Amazon is paying roughly 3% of its enterprise value for an improved position in an addressable segment that amounts to ~$1.6t according to the US Dept. of Agriculture’s ERS, especially as progress at Amazon Fresh (in terms of regional rollout) has been admittedly slower than we expected. The knock-on strategic benefit over the longer term should be 1) higher consumer engagement as the frequency of shopping for food and groceries should be greater versus the other verticals, 2) improved consumer selection in the category, 3) likely better bargaining terms with some of its current groceries/fresh produce suppliers, and as an ancillary benefit (while not as meaningful for the near to medium term) a 4) physical store footprint for Amazon-branded merchandise both hardware and softlines.

Others, such as Opennheimer, expect overbids, and OpCo raised its PT from $40 to $45 just on that.

Some context on the relative size.

 

And Kroger, Wal-Mart, Sprouts, and Target are plunging... (WMT -4%, TGT -5.5%, SFM -7.6%, KR -12%)

 

And European supermarkets are getting hammered -

  • *AHOLD, CARREFOUR, TESCO FALL TO LOWS ON AMAZON/WHOLE FOODS DEAL
  • *AHOLD DELHAIZE SLUMPS 6.8% IN AMSTERDAM ON AMAZON NEWS

With good reason probably. Grocery margin are 1-2% at best, and if Amazon can truly create smart stores with no check outs and cut employees in half they can kill regular supermarkets...

As Bloomberg's Gadfly recently opined, Amazon wil kill your local grocer...

Amazon's done it to books. And electronics. And clothing. Now it wants to rule the grocery aisles.

 

But Amazon still has a ways to go -- the online retailing behemoth has taken a slow, yet calculated approach to attacking the grocery store. After years of testing the AmazonFresh program in its Seattle hometown, it began expanding the grocery delivery service to other cities in 2013. Today, it delivers fresh fruit and meat in parts of New York, New Jersey, Pennsylvania, Connecticut, California, Washington and Maryland. It also delivers food through its Amazon.com website and its Prime Now program.

 

And even though research from Cowen & Co. pegs Amazon's market share of food and beverages sold online in 2015 at about 22 percent, that overall online grocery market in the U.S. is pretty small. Out of the $795 billion Cowen expects Americans to spend on food and drinks this year, it estimates only about $33 billion of it will be spent online.

 

That's because it has taken shoppers a long time to grow comfortable with buying their apples, chicken breasts and granola online when they can stop by a physical store on the way home from work and actually touch and smell the food they're buying. Companies struggle to profit from the very expensive business of picking, packing and transporting fresh food to their customers. It's much easier to mail a video game or book, which doesn't have to be kept cold or free of bruises.

 

But for Amazon, the grocery business not only brings more sales, it could also make its business more profitable. People tend to buy groceries weekly or daily, so getting them hooked on delivery justifies sending trucks out more frequently. Then any general merchandise, like a book or toy, that Amazon sells along with the food adds to profits. And since Amazon will need more trucks for grocery delivery, it could reduce its reliance on shipping companies, which have contributed to soaring costs. For now, Amazon is likely to take added grocery costs on the chin, in hopes it will pay off down the line.

 

Growing its AmazonFresh and Prime Now offerings suggests Amazon is gearing up for the long haul in grocery. Though traditional grocers are not likely to see sales migrate to Amazon right away, that luxury won't last. And just like bookstores, your local grocer could be toast.

Thank you Feds...

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DC Beastie Boy's picture

No they sell everything that's different that's why Amazon bought them.

Get it?

farmboy's picture

Amazon meet mr Lidl. They will be eaten by the Germans.

Lidl sells not only daily groceries also a lot of upscale food.

Bezos got crazy when his stock dived below 1000.

MEFOBILLS's picture

Amazon meet mr Lidl. They will be eaten by the Germans.

LIdl and Amazon, meet HEB.  You will both be eaten by Texans.

In Texas, HEB has already spanked A&P, Safeway, Piggly Wiggly, Albertsons, many small other competitors, and now they give Wall Mart almost more than they can handle.  

HEB is operating without debt, doesn't have to worry about what the stock market demands, and makes long term strategic moves.  They own their stores, own the locations and take profits on land areas they anchor. 

The grocery companies are already looking at distribution from their many locales, which would be a hub and radial design, with each store being a hub.  Driverless electric cars in future would make this hub system more efficient than Amazon.

 They are also looking at making drive through windows, where "on your way home" you pick up your groceries.  This would only entail making a refrigerator space to store pre-picked items at drive thru window.  If need be, the stores can have robots for pick and place.  These people are not stupid, and HEB is in Austin just like Whole Foods.

Now, tell me, how inconvenient is it to drive by the store and have your pre-picked groceries loaded into your car.  Some will chose that option, and others will want to walk around and shop.

I can also tell anybody straight up, that if Lidyl decides to move into HEB territory, they will find a more ferocious competitor than they have ever encountered.  HEB has already pioneered grocery concepts that the rest of grocery industry follows, so it is not a stretch that HEB will copy LIDL and make identical stores if necessary.  HEB also MANUFACTURES, and makes profits on many items as well, which means they will under-sell Lidl.

It is obvious that BEZOS wants to improve his distribution, but what I'm saying here is that Bezos will find the Grocery Market works on razor thin margins, and the competitors in this space are lean and mean.  Bezos may improve his frequency of distribution, thus lowering transport costs, but it doesn't matter in the grocery space.  Bezos will be only a minor disruption in the grocery space.  He paid a lot of money to make incremental improvements in distribution and choice - it is a stupid move.

The entrenched grocers, especially innovators like HEB, already have pulled out their long knives and are sharpening them.  Charlie Butt (HEB) once said about Wall Mart... "we like competition, we think we can compete with anybody."

Get out the popcorn, let the Grocery Wars begin.  It will be fun to watch.  Place your bets!  My money is on the big bad ass Texan in the corner.

Drimble Wedge's picture

H-E-B     Texan? Maybe in the 1800's, but not anymore

 

& the beat goes on (refer to previous dialogue above ~ well, 'dialogue' on one side, ad hominem comments & junks on the HEB side).

 

http://www.vosizneias.com/21502/2008/10/19/san-antonio-tx-chain-store-op...

http://www.thejewishoutlook.com/home/2016/7/11/far-west-h-e-b-renovation...

MEFOBILLS's picture

You are making my point for me.  Thanks!

Here is another one.  HEB opens a store aimed a Latinos.

https://www.austinchronicle.com/food/2012-01-20/h-e-b-mi-tienda/

Get it now?  They will try anything, then they study.  They used to run supercomputer modeling on pricing strategies, with micro-climates.  Does that sound normal?  This is why they don't do in-store coupons, they have figured out other ways to segment the market.

As far as the JOOO angle goes, maybe you should read some of my previous posts. HEB is not Jew owned, nor are they controlled by them.  It should make you glad that they are sucking money away from Jews and not in the normal reverse direction.

Yes, when you turn over a rock in finance space (wall street and banking), and you find Jews, then almost always they are stealing and taking rents.   So, it is appropriate to have your Jew-Dar on, but in this case you are pinging a false and contrived image. 

SubjectivObject's picture

HEB, Central Market, for the fucking win.

DC Beastie Boy's picture

It's not razor thin, upwards of 50% margin for retailers. (Net, not Gross)

Razor thin is less than 1% for pharma distribution.

newdoobie's picture

Whole foods sucks, who in their right minds believes all that "organic" nonsense!

 

Way overpriced junk food.

Still Losing Money's picture

when AMZN puts brick-and-mortar out of business everyone cheers cause b&M is supposed to be outdated and then those exact same people turn around and cheer even louder when AMZN gets into B&M buisinesses and opens stores..

Sudden Debt's picture

the concept look great and if it's errorfree it can win. I spend as much time at the checkout lanes as I do shopping. 

Makes all the sense in the world.

And after that, electronic stores, clothing stores, everything. 

As long as they don't start doing mega stores because those take up to much time and the timesaving is lost.

Next up, automated restocking, automated transport, automated warehousing and you'll only need 4 people per store to keep it open 24/7

NICE!

 

And people who are affraid of losing jobs, these are valueless jobs. Outdated jobs. 

tmosley's picture

A few people lose low value jobs, everyone gets significantly lower prices. This is the economic model of the technological singularity. As the process goes on, goods and services will get cheaper and cheaper, until most of them, including all the neccessities of life, are FREE.

Internet content is the model. A few content creators leverage massive "robotic" workforce to produce and distribute their content, most people get it for nothing, and they still make money, whether from the freemium model, advertisments for premium services, donations in more personal cases, etc.

It's a bright future.

Sudden Debt's picture

I was in a car race through europe this week and I met this young kid who drove a lambo who was also in the race. Het made about 110K a month with his youtube channel talking about cars.

1 million followers.

He's doing his hobby and he's making more money then most people I know because it's taxfree and his costs are almost non existent.

 

Squid Viscous's picture

i'm going to start a youtube channel too, about how much I love cars and hate jews.

I will make millions!

SixIsNinE's picture

you could get 10 million subscribers, but YT would de-monetize you, 

 

as they have over the past months on any "controversial" subject.

this fellow with the cars, that's perfect -  no controversy there.   roughly smart ytubers get a buck per thousand views.

cute cat vids 7 million views, that's 7 grand  Bitchezzzz.

seems too good to be true?  so did ethereum a few weeks ago when it was 15 and some zeros told us it was gonna blast up - 

and it did. 

 

wow - 58 million views on this 3 minute vid about indig peoples unusual practices -   58 grand?   https://www.youtube.com/watch?v=kn-3i1rQuFA

really should think about youtubing it ....

 

MEFOBILLS's picture

It's a bright future.

 

Capitalism might collapse.  Actually it is likely - it is already happening.  Capitalism distributes by price.  In a fully robotic future, labor is no longer working to make goods as prices.

Capital has two meanings:  Capital as money, and Capital as means.   Capital as means is builidings, capital equipment, and labor... the means are the ability to produce goods and services.

Note that labor is a subset of the secondary definition of Capital.

A fully automated future could also be killer drones and killer robots, to then make sure that Oligarchy (Capital Owners) retains its ownership status.

So far, throughout history, the ownership class has always fought back, including creating wars of diversion.  Typically they emerge from war, to then buy up more of the world.

AVmaster's picture

Yea, that's great and all but we are a consumer driven economy that is driven by consumer business employees...

 

What happens if the consumer employee is no longer consuming???

Zero_Ledge's picture

Guaranteed Basic Monthly Income is right around the corner.

swmnguy's picture

Yeah, that's probably true.  They'll go to any length to preserve the finance system that is so obviously not delivering as promised.  Those who have accumulated enormous advantage find it far cheaper to pay people to not work than to hire them to do work.  Talk about perverse incentives.

But realistically, this outcome has been foreseen for a long time and shouldn't surprise anyone.

Sudden Debt's picture

NOT that FAST

First we will need to go through a time period of about 10 years where the poor will become dirtpoor and where they'll be begin for food.

As of now, they're not doing so and they're not desperate enough yet.

 

Also, anybody who has a job and money hates this idea because they'll have to pay for it. be it through taxes or inflation.

It's the worst idea ever BTW.

It's communisme and that has shown us that it doesn't work. All you get is lazy people and America already has enough of those.

Also, if it's not universal, the country that does it will go bankrupt in a few years and get a venezuela lifestyle.

And no sane country with industrial output will want to accept their money.

 

 

spastic_colon's picture

yes cant wait to not shop at amazon grocery so I can be tracked for what i eat now.......pets.com/aol-time warner moment.....this was telegraphed as KR was down big other day.....i will keep shopping at KR.....cancelled my prime a long time ago.

Mr.BlingBling's picture

"BEEP!  Purchase denied.  Please return the ice cream to the freezer unit <Spastic Colon> and do not attempt to re-purchase until your integrated health records show a BMI < 25."

Mr.BlingBling's picture

They may be "valueless, outdated" jobs; however, they keep the left half of the bell curve occupied.  If this trend was married with sterilization incentives for those on the left half of the curve, then this trend might lead to a better society.  But it's not and it won't.

We cannot let our future society be shaped solely by tech gurus and the Fed's free money, because the unintended negative consequences will be epic.  They will include even more centralized control due to the concomitant surveillance, the need for universal basic income to support the jobless, and the resulting conversion of all such useless eaters to voters eager to support those who promise . . . MOAR.

EndOfDayExit's picture

Sterilization does not help – inheritance of IQ is only 30-40%. Lots of high IQ folks come from that left half of the bell curve families. The way humans procreate is like for each high IQ person there will be 5 useless eaters. Now try to come up with a viable economic model which would not require getting rid of those 5 once in a while… Not easy at all.

MEFOBILLS's picture

There is regression to the mean.  Those who come from the Low IQ side of the distribution, tend to return to it.

For example, Indians in India are not that bright.  The overall IQ of the country is not that high, yet those who come to the U.S. tend to be their elites.  If you don't continually re-breed with high IQ in subsequent generations, you will get a regression to the mean.

Hi IQ populations tended to be created in the northern winter latitudes, due to suvival of the fittest, and that also means long range planning.  The weather was always a foe, and low IQ people would not survive to breed.

Lower lattitude races did not receive this tens of thousands of years of evolutionary pressure, therefore they will tend to regress to their lower mean.  

Whenever you talk about IQ, you must also include race.

BabaLooey's picture

THE MARK OF THE BEAST............

 

SMART PHONE..................?

C.C. WITH A "CHIP" IN IT............?

carry it around with ya....do ya?

YOUR MARKED/TRACKED/COULD BE LOCATED AND DRONED IN LESS THAN 30 MINUTES.......

....................just super

Justin Case's picture

Next, they will mint their own Crypto... Got Amazoncoin ?

 

zioncoin

johnconnor's picture

Amazon is the Borg... your business, IP and workers will adapt to service us... resistance is futile!

MFL5591's picture

They can ruin this stores business model amd put more people out of work.  More empty retail space as Bezo and the Wall Street gange start for a strangle hold on food!

Stuck on Zero's picture

I'm going to rush right out and buy me some Amazon Prime Rib.

Son of Loki's picture

WF has the most arrogant employees...mostyl self-righteous sjw's where I live. I avoid them like the plague esp since we now have at least two other competitors with less expensive organic stuff, a very wide selection if not greater then whole paycheck,  and much more polite employees.

 

Screw WF.

scoutshonor's picture

One of my guilty pleasures: when out riding my bike when I pass a whole foods I go in and search in a vacant fashion until a helpful associate stops to ask can they help me locate something.  

I tell them I'm looking for Rice-a-Roni.  When they tell me they don't carry it I go all rainman and shout, "I'm not leaving without my San Francisco treat!"

I have to go on my bicycle cuz my friends refuse to stop there for me since the last few dozen trips.  Great fun--especially if you get slightly baked before you go in.

Mr. Universe's picture

That's the typical scene here at the Berkeley location of Whole Foods...

thank-you-jerry's picture

Ha!  I love it.  I like to go in there and wander up to random shoppers and say, "man, organic is sooo overrated."  I get some great looks. 

Merica101's picture

Lol. Ok, you got a laugh out of me. Thx...

vealparm's picture

Next time you go in ask for Oscar Mayer Baloney........

Antifaschistische's picture

late last week....I order a very common grocery store item...something from the shelf of EVERY grocery store.  I order it from Amazon.  Two days later, I get the shipment confirmation from the seller who is in New  YORK.  NEW YORK...I'm in HOUSTON!!!   What part of inefficient does Amazon have to figure out to ship me something relatively heavy from NEW YORK that's on the grocery store shelf ONE MILE from my house.   Maybe Whole Foods can help them figure this out.  (note:  walmart.com is WAY more efficient when welling grocery store like items)

....okay, now you can make fun of me from ordering it off of Amazon and not going to the grocery store myself.  :)

gatorengineer's picture

congrats for paying probably 3x what the item would have cost at a local market.  

Antifaschistische's picture

actually no more than at Kroeger...but I value my time pretty highly.    (which is why I come to ZH.  lol)

motorollin's picture

Why would you order from a 3rd party seller on Amazon? Filter your results with the little Prime button and avoid these problems.

Blankenstein's picture

You still might be buying that third party seller's merchandise even though you didn't select them.   Amazon's dirty little secret - they commingle their inventory.  Some shady third party fakes are mixed in with the legitimate products.  

 

"Commingling on Amazon has gotten a considerable amount of flak from both sellers and consumers. Some businesses have noted that fake products can get mixed in with the bunch, which leads to negative brand perception, negative reviews, and potentially even unwarranted product returns."

"“It is [fraud] also a result of the way Amazon manages inventory in its network of warehouses across the U.S. As more third-party sellers have signed up to offer products through Amazon and use its order-fulfillment services…in essence commingling products from third-party merchants with those supplied directly to Amazon by the brands themselves.”- WSJ "

 

http://www.cpcstrategy.com/blog/2015/08/brand-protection-amazon/

general ambivalent's picture

The government pays for the shipping, so it's technically free/perfectly efficient.

Look at the technocrat idiots above who believe in this digital money utopia.

Ward no. 6's picture

i am picky about buying food

i look at all expiration dates and if u order online well they are not going to pay attention to that

when i shop i buy the things in the back -- later expiration dates

no way will i buy food online

swmnguy's picture

My favorite is seeing blueberries from Chile in my local grocery in Minneapolis, in February, for $5.00 a pint.  I doubt I could mail anything more than a postcard to Chile for less than $5, and a postcard isn't perishable.

Infinite fake capital and nearly-free energy are what's driving this.  When either cost of capital or energy approach true cost, the current model of retail ends immediately.

I buy cat food from Amazon because I can get it cheaper than in the store and I don't have to go fart around buying it.  As long as I order more than $50 of it at a time and have enough left to wait a week to get it, why not help myself to the wondrous benefits of free capital and free energy too.

buttmint's picture

...when does Bezos buy Trader Joe's and the Vatican?

Consuelo's picture

 

 

+1000

 

DING!!!!  DING!!!  DING!!!