Market Overview

What Makes Sense About Amazon Buying Whole Foods

What Makes Sense About Amazon Buying Whole Foods, Inc. (NASDAQ: AMZN)'s pending acquisition of Whole Foods Market, Inc. (NASDAQ: WFM) has been the talk of the business world.

With Amazon attacking the food delivery and grocery market, picking up 460 Whole Foods locations immediately scales Amazon’s pickup points presence. In addition to its food delivery business, Fresh, Amazon is poised to take control of the grocery market.

If the deal closes, Amazon would only be paying $40 million per store, which pales in comparison to $200 million per fresh facility, making the move look even more astute.

Barclays analyst Ross Sandler believes Amazon will be able lower food prices and could be able to take an additional $3 billion in market share in a short time frame.

How Whole Foods Complements Amazon?

  • Frequency: The average grocery shopper visiting their local store on average 83 times per year.
  • Prime: Whole Foods consumer demographics match up well with Amazon. Prime has a member base of 45 million shoppers, while Whole Foods has 30 million shoppers.
  • Delivery: While Whole Food’s 460 stores may not be used for delivery hubs, orders may be routed from stores to Amazon’s vast delivery network.

Other Speculations

While speculation has run wild on what Amazon may do with Whole Foods, Sandler proposed some concepts that may make sense from the merger.

With Amazon’s hundreds of mathematicians working to improve cycle times and driving efficiency, it's expected to leverage its vast resources and network to help improve Whole Foods in-store and supply chain management.

With shipping costs making up 5 percent of Amazon’s gross merchandise volume, Sandler sees Amazon locker strategy benefitting from high-frequency location positioning.

Amazon could also create its own private label brand through Whole Foods. While Whole Foods has its own private label with 365 brands, Amazon could increase the lower than industry percentage of sales from a private label, according to Sandler.

Barclays has an Overweight rating on Amazon, with a $1120 price target.

Related Links:

Winners And Losers From Amazon's Purchase Of Whole Foods

Speculation Runs Amok: Who Will Be Amazon's Next Acquisition Target?

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Posted-In: Barclays Ross Sandler Whole FoodsAnalyst Color Analyst Ratings Best of Benzinga


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