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4 Topics Of Interest As The Amazon-Whole Foods Deal Is Now Official

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August 28, 2017 11:44 am
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Amazon.com, Inc. (NASDAQ:AMZN)'s acquisition of Whole Foods Market, Inc. (NASDAQ:WFM) completed Monday, which means the e-commerce giant officially has a retail presence in the form of a national grocery chain. Naturally, investors have many questions moving forward, and analysts at Morgan Stanley answered four of the most pressing concerns.

Lower Prices

The first question is if Amazon's decision to lower prices in Whole Foods' stores will result in market share gain. The answer is a clear yes, according to Morgan Stanley's Brian Nowak. Specifically, 70 percent of consumers surveyed who don't shop at Whole Foods list the higher prices as a barrier; therefore, lower prices could lead to accelerated gains.

Profitability

On average, prices at Whole Foods are 14 percent higher compared to grocery stores, which has some investors wondering what the impact on profitability will be amid lower prices. The answer is it depends — based on the volume gains — but if Whole Foods cuts prices by up to 8 percent on average, the company can still break even.

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"We acknowledge the oversimplification here (all prices won't come down by the same amount, there will be other AMZN investments impacting profitability, etc) but this, in our view, speaks to the pricing-driven marketshare opportunity and impact of AMZN's likely decision to invest in price to drive volume," Nowak explained.

Prime Integration Into Whole Foods

Investors are expecting Amazon to generate some cross-selling opportunities through its Prime membership. The analyst believes that as it stands now, just 5 million Whole Foods customers aren't already Prime members.

The opportunity for promoting Prime membership to those 5 million customers makes the analyst bullish on the company's long-term profit potential.

Whole Foods Integration Into Prime

Finally, if Amazon can push its Prime membership and other products on Whole Foods' customers, could the reverse prove true as well? Whole Foods' private label products will certainly be sold on Amazon.com and its other online food channels, but this will serve as just the beginning of its longer-term food plans.

"This will only further Amazon's competitive offering versus other retailers," the analyst stated.

Related Links:

Amazon-Whole Foods: Everything You Need To Know As A Shopper And Prime Member

The Biggest Threat To Kroger Isn't Amazon And Whole Foods — It's Still Walmart

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