Why did Jeff Bezos shock markets on an otherwise quiet Friday, with Amazon announcing it would acquire Whole Foods for $14 billion? The reason is because he wants to do to the grocery sector what he has already done to bricks and mortar retailers and discount stores, who as we have shown in the past are in a tailspin with a record number of store closures expected in 2017. And as the following chart from BofA shows, the grocery sector is already well on its way...
... to becoming the next department store space, which has been decimated courtesy largely of Amazon.
And now with the Amazon juggernaut behind Whole Foods, the implosion will merely accelerate courtesy of Amazon's "smart pricing" algos which will put even more revenue and margin pressures on the entire sector.
Meanwhile, as a result of the "transformation process", Amazon will get the benefit of the doubt from Wall Street for reporting even thinner margins for the next 4-6 quarters as the restructuring takes place, and comes at a time when AWS appears to be peaking as cloud services from other providers are scrambling to underprice Amazon's biggest growth strategy.
Sure enough, following the news, the entire grocery and mass merchant sector is implding:
KR down as much as 15% pre-market on volume >2.5m
- UNFI down as much as 9.6%
- SFM down as much as 9.6%
- TGT down as much as 5.2%
- WMT down as much as 4.6%
The same is taking place in Europe, where the FTSE 350 Food & Drug Retailers Index plunged 3.2%,
- Ahold Delhaize -7.1%
- Tesco -4.2%
- Carrefour -3.2%
- Casino -1.8%
- Sainsbury -1.7%
- Jeronimo Martins -1.4%,
- Morrison -1%
As to how Amazon wil drive traffic to Whole Foods, here is an idea:
"Alexa, what grocery store is closet to me"— Carl Lantz (@CarlLantz) June 16, 2017
"The closest grocery store is Whole Foods, 9 miles away."