Analysts are turning on Costco (NASDAQ:COST), concerned that the longtime market darling is finally vulnerable following Amazon.com's (NASDAQ:AMZN) news-rattling announcement, late last week, that it would be acquiring Whole Foods Market (NASDAQ:WFM) in a $13.7 billion all-cash deal.
Analysts at Barclays revised their target price on shares of Whole Foods higher even after it agreed to be bought over by Amazon.com, arguing there was a fair chance that a more enticing offer would be forthcoming. Its $230 billion market value dwarfs listed USA grocers, including Target, Kroger and Sprouts Farmers Market, as well as private Albertsons.
While according to Rafael Romero of CREC's retail division, "I don't think that this will be the last of Amazon's purchases", and "They fully recognize that brick and mortar and online retailing is all retailing and you need both". Amazon could provide the financial capital and tactical ability to build that into something big.
Any buyer of Whole Foods would likely argue that it was not in the same market, said Alden Abbott, an antitrust expert with the Heritage Foundation. Whole Foods is also among its partners, though the fate of their five-year contract may now be up in the air.
A year ago the United Kingdom supermarket struck a deal to supply fresh, frozen and non-perishable goods for Amazon's Pantry and Prime Now services. Despite this report, an Amazon spokesperson directly told Bloomberg that it has no plans to use the sans checkout technology to cut cashiers.
"The possible effects on Whole Foods alone are interesting to contemplate", said Maute, a nationally known expert on private label products.
On the flip side, Amazon could use Whole Foods stores as pickup locations for deliveries, an option Amazon already offers in many cities by installing lockers at 7-Eleven and other retailers.
"Shifts in the retail environment, particularly in North America, may pose risks broadly for center-store processed food manufacturers, including General Mills". Amazon's move aims at the heart of the Bentonville, Arkansas-based retail giant's business - groceries, which account for 56 percent of Wal-Mart's $486 billion in revenue for the year ending January 31.
Whole Foods will eventually be part of Amazon CEO Jeff Bezos's empire. In the past two years, it has leased 20 Boeing 767 air cargo jets from Atlas Air Worldwide Holdings, won shipping licenses that allows it to pay for containers at wholesale rates and rent them out for more expensive retail rates, and added thousands of long-haul trucks emblazoned with the Amazon logo. "We also add that the overlap between Whole Foods's affluent customer base and Amazon's is likely very high".
Will this change how I buy my groceries?
Does Amazon stock depend on Whole Foods?
The Whole Foods deal could also get more people to try grocery delivery, something many shoppers have been hesitant about because of concerns about meat and produce quality. Amazon stock was still set to open higher on Monday morning despite the risk that it will end up paying more for Whole Foods than first reported. With this acquisition, the way we shop as a result of the internet could change; going in a store, scanning a pass (or being facially recognised), selecting goods, putting them in your bag and walking out, being charged via your amazon account is a game changer.