Amazon’s $13.7 billion acquisition of Whole Foods Market sheds light on a stark reality within retail — Jeff Bezos is willing to pony up big money if it means his company takes the pole position within a vertical. Of Amazon’s 70+ acquisitions, the Whole Foods purchase has made the most noise; and it surely has retailers shaking in their boots knowing that the e-Commerce giant can acquire pretty much any merchant it wants.
The takeover deal is more than 15 times the value of Amazon’s second-largest retailer acquisition: Zappos in 2009, according to FactSet. So what made Whole Foods so vital for Amazon to spend such an exorbitant amount?
One key selling point is the overlap in the Amazon and Whole Foods customer bases. Magid’s Retail Pulse demonstrates that Whole Foods customers are the most likely of any major grocery shopper to be Prime users (61%), and are also most likely to have shopped for groceries online in the past (58%). Compare this to other brands such as:
Trader Joe’s: 59% Prime users, 55% online grocery shoppers;
Costco: 53% 41%;
Sam’s Club: 51% 42%;
Safeway: 47% 45%;
Target: 45% 50%;
Kroger: 35% 28%;
Walmart: 34% 30%; and
Local Grocery: 30% 29%.
“Acquiring Whole Foods made a ton of sense,” said Bryan Eisenberg, New York Times best-selling author and Partner of Buyer Legends, in an interview with Retail TouchPoints. “We know Jeff Bezos has had tremendous desire to own the grocery store space, and Whole Foods was just a perfect target in terms of price and brand image. They don’t go acquiring businesses just for the sake of acquiring them.”
Does Amazon Have More Retail Targets On The Horizon?
Amazon has been linked to a possible purchase of BJ’s Wholesale Club, so it’s probable that many of its customers are Prime members and have shopped for groceries online in ranges similar to Costco and Sam’s Club. But Chuck Grom, a retail analyst at Gordon Haskett Research Advisors, noted that Amazon’s next target maybe in the discount category.
“The Whole Foods acquisition gives Bezos a weapon to attract a customer he largely already caters to (the majority of Prime members make more than $100,000 per year),” said Grom. “But if the goal is to fully compete against Walmart (and the low-end), then could Dollar General be next on Amazon’s buying list, in order to go after an arguably larger part of the U.S. population?”
In an interview with CNBC, Tom Forte, Senior Consumer and Consumer Internet Analyst and Managing Director of investment banking firm Maxim Group, expressed that Amazon would possibly have interest in purchasing clicks-to-bricks brands with limited store footprints, such as Everlane, Warby Parker and Lululemon.
“A Warby Parker or Lululemon deal starts to make sense for Bezos and his team because it checks boxes like apparel, physical stores, being a lifestyle category — all things that Amazon wants to accomplish in a takeover now,” Forte said.
…Or Are B2B Commerce And Driverless Cars Also In Play?
But Eisenberg isn’t as convinced that Amazon will be spending its cash to buy another retailer, guessing that it is likely finished with these purchases for now. He believes that the e-Commerce giant will focus on B2B platforms and even car companies to help boost its service and fulfillment offerings, even suggesting that a company like Mercedes-Benz could be a potential acquisition target.
“There’s a couple companies experimenting with driverless cars, so it would make sense for them to be in that space,” Eisenberg said. “Logistics is their big play. They need their drivers to deliver…but what if it’s not drivers as much anymore as it’s self-driving cars that are more efficient and less accident-prone, and they now move their fleet to these cars? To me, that’s the next move they go into, whether they build them themselves — they have the investors, the capital and the knowhow — or acquire one of these companies in the near future.”
Despite Amazon’s Dominance, Monopoly Status Remains Unlikely
With any major acquisition, there’s always a worry that the combination of two major corporations can limit competition and be detrimental to the sector’s overall progress. The FTC’s recent crusade against the pending Walgreens–Rite Aid merger shows that billion-dollar mergers are often met with skepticism from regulators.
But Eisenberg believes that Amazon’s rabid focus on customer-centricity will prevent government agencies from feeling the need to intervene in these transactions.
“At the end of the day, the government really doesn’t get too involved if the consumer is a win,” Eisenberg said. “The consumer always wins; that is Jeff Bezos’s obsession. As long as the consumer is really happy, no one is really going to get in Amazon’s way. When you look at big government interventions, it typically happens when customers are upset. If Amazon would acquire either Walgreens or Rite Aid, fewer people would complain. They’ll say that they’re going to figure out ways to cut costs as much as they can, and they’d still do a whole lot better than what the other two are doing, and they’re not that great of experiences no matter what. If they wanted to take over any of the telecom companies, I think people would welcome it.”