Amazon buying Whole Foods, making strong move into groceries

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Amazon is making a bold expansion into physical stores with a $13.7bn deal to buy United States grocery chain, Whole Foods.

Online retail giant Amazon announced on Friday that it had reached a definitive agreement to acquire Whole Foods Market for $13.7 billion.

Amazon's $13.7 billion purchase of Whole Foods means the supermarket, and retailing overall, will never be the same. It reinforces the Amazon interest in the sector and also offers an insight into where they're going.

Moody's lead retail analyst Charlie O'Shea said the deal could be "transformative, not just for food retail, but for retail in general".

"The anticipation was that grocery will go to about 20% online in the next couple of years", she said. "It'll be interesting to see what [technological innovations] they choose to pull forward into a larger-scale brick-and-mortar environment - which pieces are most resonant for shoppers and consumers".

"You never know where it comes from", she said.

"If you can't make a good margin you can't reinvest to make a better product", Motkin said. "It's a bit unsettling".

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As if Amazon hasn't conquered enough as a leader in the online shopping marketplace, they will now have their hands on one of the largest health food retailers. "I'm aging, and I was in there and I was surprised how many people were bent over with age". It also had been facing increased pressure from rivals, including European grocery chain Lidl, which is planning to enter the East Coast market, along with Aldi and Trader Joe's. And the company has launched an offshoot chain named after its "365" private label brand, a nod to the popularity of no-frills chains that draw shoppers with low prices.

Walmart, which has the largest share of the US food market, has already been pushing harder into e-commerce to build on strength in its stores and groceries. Target tumbled by 10 percent and Walmart was down by 6 percent.

Online delivery of groceries so far has been tough for any company to pull off because of customers' concerns about the quality of meat and produce, Wedbush Securities analyst Michael Pachter said. "That is the reality today at Amazon, and it will no doubt become the reality at Whole Foods", said UFCW President Marc Perrone in an email.

"This will definitely make the market more competitive", she added. Whole Foods shares were trading just above that level on Friday, as investors saw negligible regulatory risk to the deal closing.

"I think that this takes all of the pressure off Whole Foods and gives Whole Foods the opportunity to revitalise that business and, of course, it stems the criticism from all of these activist investors", said Neil Saunders, managing director of GlobalData Retail in NY. "The strategic reasons are that Amazon can put the other bidder out of business, and Whole Foods' investment in delivery creates an instant offense against Amazon Fresh delivery".

Amazon has been accused of destroying portions of the entire brick-and-mortar retail economy. Whole Foods chief executive John Mackey would remain CEO after the purchase and the company would keep its headquarters in Austin, Texas. The deal is expected to close by the end of the year.

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