Amazon is buying Whole Foods in a deal valued at about $13.7 billion, a stunning move into brick-and-mortar retail that sets the stage for more radical store experimentation and intensified competition with grocery rivals.
The online store announced plans to acquire the health food chain on Friday, saying it would play $42 a share in an all-cash transaction – a $9 premium on the $33 a share that Whole Foods closed at on Thursday. Amazon will also take on all of Whole Foods’ debt. The deal is expected to close in the second half of 2017.
Whole Foods will continue operating its grocery stores, with co-founder John Mackey staying on as CEO. Their headquarters will also remain in Austin, Texas, where the company was founded in 1980.
‘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,’ Mackey said in a statement on Friday.
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Amazon is buying Whole Foods in a $13.7billion deal. The online retailer will pay $42 a share for the Austin-based grocery chain
The deal is expected to close in the second half of 2017. Above, a Whole Foods store in Boulder, Colorado
Founded: July 5, 1994
Headquarters: Seattle, Washington
2016 revenue: $135.99billion
2016 gross income: $47.72billion
2016 net income: $2.37billion
Jeff Bezos – chairman, president, CEO
Werner Vogels – CTO
Andrew Jassey – CEO, Web Services
Jeff Wilke – CEO, Consumer
Founded: September 20, 1980
Headquarters: Austin, Texas
2016 revenue: $15.72billion
2016 gross income: $5.41billion
2016 net income: $507million
John B. Elstrott – Chairman
John Macket – CEO
Jason Buechel – CIO
The deal unites the online juggernaut with the grocery store chain that fell behind as the organic and natural foods it helped popularize expanded to more locations and shoppers found ‘good enough’ alternatives.
Amazon already offers grocery-delivery services in five markets, but the Whole Foods purchase – with its 465 locations in North America and the UK – would let it expand to many more. Amazon also offers grocery shipments elsewhere, but that’s tough with perishable foods.
‘Amazon clearly wants to be in grocery, clearly believes a physical presence gives them an advantage,’ Michael Pachter, an analyst at Wedbush Securities Inc. told Bloomberg. ‘I assume the physical presence gives them the ability to distribute other products more locally. So theoretically you could get five-minute delivery.’
Lately, Amazon has been expanding its reach in goods, services, and entertainment.
It’s been testing automation technology at a Seattle convenience store that’s currently open only to Amazon employees. The store uses sensors to track items as shoppers put them into baskets or return them to the shelf. The shopper’s Amazon account gets automatically charged.
Amazon could cut costs if the technology gets good enough to deploy at Whole Foods locations. Whole Foods will keep operating stores under its name.
Amazon has also opened several physical bookstores lately. The bookstores feature the company’s most popular books, none of which have less than a four out of five star customer rating.
John Mackey (left) will stay on as CEO of the grocery store chain. Amazon CEO Jeff Bezos pictured on the right
Amazon was up nearly three per cent after the announcement Friday morning
Whole Foods stock also started to climb after it was temporarily postponed for the news
THE HISTORIES OF AMAZON AND WHOLE FOODS
Jeff Bezos quit his job as a vice-president of Wall Street firm D.E. Shaw & Co. and moved to Seattle to start Amazon.com in 1994.
He named the company Amazon because it sounded ‘exotic and different’ – but also because the Amazon river is the largest in the world and he wanted his online store to be the largest in the world as well.
Bezos decided to focus on books initially because there was a large worldwide demand for literature and books have a low price point.
Jeff Bezos is pictured pushing a shopping cart full of books and compact discs down an aisle of bookshelves in 1998
In the first two months of business, while operating out of Bezos’ basement, Amazon.com shipped books to all 50 states and over 45 countries. Within two months, the company’s sales were up to $20,000 a week.
In 1997, just two years after selling its first book, Amazon.com went public on the NASDAQ stock exchange under the symbol AMZN with a stock price of $18 a share. Today the price of a single share is now nearly $1000.
While initial investors complained that it wasn’t growing fast enough, Amazon proved to be a sturdy internet company – surviving the dot com bubble burst and going on to start turning a profit in 2001.
Last year, the company announced plans to build convenience stores and develop curbside pick-up locations for food.
The company has also opened an ‘Amazon Go’ store in Seattle that uses sensors that automatically charge a customer’s card, meaning there is no need for a check-out line.
The company recently opened a new downtown Seattle headquarters.
Whole Foods came out of the merging of two natural food stores in Austin, Texas in 1980.
Current CEO John Mackey and Renee Lawson borrowed $45,000 from friends and family in 1978 to open up a small vegetarian natural foots stare called SaferWay. The two started living in the store when they were invicted from their apartment for storing food products there.
Two years later, they partnered with Craig Weller and Mark Skiles to merge SaferWay with the latter’s Clarksville Natural Grocery – making the first Whole Foods Market.
The first store was 10,500-square feet and employed 19 employees.
Just a year after opening, the building was devastated in a flood and they had no insurance to fix the damages. But customers, neighbors and staff pitched in to a fund to repair the store and get it up and running again just 28 days later.
Above, the first Whole Foods Market in Austin, Texas. The chain was started in 1980
Whole Foods first started expanding in 1984, first to Houston and Dallas and then New Orleans.
After that came a store in Palo Alto, California.
The store expanded by buying up other natural food stores across the country such as Detroit’s Merchant of Vino stores or Bread & Circus in New England.
The company opened it’s first foreign location in 2002, with a store in Toronto, Canada.
Two years later, the company entered the UK market by buying the Fresh & Wild stores. The first Whole Foods branded market was opened in the UK three years later, with a 80,000-square-foot store on Kensington High Street in London.The company operates nine stores in the UK.
Recently, the company has seen a slump in sales that caused them to announce the closing of nine stores in February.
In April 2017, Whole Foods reported their sixth consecutive quarter of declining sales, which they attributed to foot traffic being down and other supermarkets offering a similar experience for a lower price.
Amazon was reportedly eyeing a deal to acquire Whole Foods last fall but didn’t follow through at the time.
Recently, the company has seen a slump in sales that caused them to announce the closing of nine stores in February. In April 2017, Whole Foods reported their sixth consecutive quarter of declining sales, which they attributed to foot traffic being down and other supermarkets offering a similar experience for a lower price.
The grocery chain came under new pressure to find a buyer when activist investor Jana Partners LLC acquired a stake and began pushing to sell.
Pressure from activist investors got so high that Whole Foods CEO John Mackey told Texas Monthly magazine recently that ‘they’re greedy bastards, and they’re putting a bunch of propaganda out there, trying to destroy my reputation and the reputation of Whole Foods, because it’s in their self-interest to do so.’
Amazon CEO Jeff Bezos spoke about the deal in a statement Friday morning.
‘Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,’ Bezos said.
‘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,’ Bezos said.
Shares of the grocery store chain were halted for the news, but started to rise dramatically as soon as selling began again. They closed at $33.06 on Thursday and were already up to more than 27 per cent on Friday around 10am to $42.03.
Meanwhile, Amazon skyrocketed in pre-market trading as soon as the announcement was made. Amazon closed at $964.17 on Thursday and has already raised more than three per cent.
The news was bad for other grocery outlets, who saw their stocks fall Friday morning. Shares of Kroger were down 14 percent, Target 12 per cent, Supervalu 19 per cent and Costco 6.2 per cent.
Walmart fell 5.8 per cent but rebounded a bit with news of their own acquisition deal. The company announced on Friday plans to buy the menswear company Bonobos for $310million.
WHO LOSES IN THE AMAZON/WHOLE FOODS DEAL
Wal-Mart Stores. The giant retailer sank $4.98, or 6 percent, to $73.91.
Target. The retailer fell $5.55, or 10 percent, to $49.90.
Costco. The wholesale club company gave up $12.44, or 6.9 percent, $167.64.
Supervalu. The grocery store operator lost 60 cents, or 16 percent, to $3.16.
United Natural Foods. The purveyor of natural and organic foods suffered gave back $6.07, or 16 percent, to $33.94.
Kroger. The grocery store chain declined $3.42, or 13.9 percent, to $21.14.
Sysco Foods. The food distributor sank $2.46, or 4.4 percent, to $53.07.
Cal-Maine Foods. The egg producer fell $2.85, or 7.3 percent, to $36.25.
CVS Health. The drugstore company lost $3.64, or 4.5 percent, to $76.45.