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June 16, 2017

Amazon buys Whole Foods for $13.7bn – proof shoppers still want bricks-and-mortar

Amazon gains 460 stores in the US, Canada and UK.

By Ellie Burns

Amazon has agreed to buy Whole Foods, the upscale grocery chain, in a deal valued at $13.7bn.

Amazon will now go up against rivals like Walmart and pitch for a big slice of the huge grocery market – a market that is worth upwards of $800bn in annual sales in the US alone

Of course, the mega deal is indicative of Amazon’s further diversification of its services, with the Whole Foods deal set to bolster its delivery service, Amazon Fresh.

For Amazon, a predominately online first retailer, the move to buy Whole Foods just goes to show that shoppers still demand a physical shopping experience – dispelling the long standing myth that the death of the high street will be brought about by online shopping. For Amazon, the marrying of an online and bricks-and-mortar offering will only further strengthen its presence in the grocery sector.

“Although Amazon is predominantly an online first retailer, this deal is clearly testament to the fact that shoppers still want a physical experience with retailers, and this caters perfectly to that,” said Rupal Karia, Head of Commercial at Fujitsu UK&I.

Amazon buys Whole Foods for $13.7bn – proof shoppers still want bricks-and-mortar

The deal is a real coup for not only Amazon, but for Whole Foods too. Recently, investors have been left frustrated with a slow stock price, with the Amazon injection of resources, cash and technological expertise providing ample opportunity to ease investor concerns. Amazon, meanwhile, has the opportunity to give the customer what they want – in-store and online.

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“As consumers want to be able to shop with flexibility – sometimes online, sometimes in-store – and expect the experience to be seamless regardless of the channel they choose, this new deal caters to that need, marrying Amazon’s online expertise with Wholefood’s physical presence. This is where retailers need to find ways to match it and ensure they are differentiating themselves from their competitors,” said Fujitsu’s Karia.

A key area where Whole Foods may get the jump over rivals Walmart is in technology – a major strength of Amazon and an area which Walmart has been seen to lag.

READ MORE: Amazon picking up the Slack? – report

Of course, this is not the first foray into bricks-and-mortar by Amazon – though it is definitely the biggest. The online giant has tested some retail concepts, including a chain of book stores and a drive-through grocery pickup in Seattle. However, with Whole Foods, Amazon gains 460 stores in the US, Canada and UK. In the last fiscal year alone, Whole Foods posted sales of $16bn.

“This deal is a clear signal of intent from Amazon to dive deeper into the grocery sector. Amazon Fresh and Amazon Go were the first steps, but this shows the ecommerce player is no longer treating grocery as just another branch in its huge eco-system,” said Hugh Fletcher, Global Head of Consultancy and Innovation at Salmon.

“While the supply-chain logistics and overall operations will be complicated, there is no hiding the fact that Amazon is striving to own the entire retail sector. It’s evident that there is also a growing importance on a robust omnichannel strategy, for both pure play and traditional retailers, and the deal underlines Amazon’s approach to grow its business across online and offline channels.

“Amazon’s newest move positions it to thrive and is designed to successfully beat competitors to the punch in grocery. The partnership also presents an opportunity to maximise Whole Food’s vast market share in the US and will no doubt enable it to digitally transform into the future.”

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