Print Edition - 2017-06-18 | MONEY
Amazon-Whole Foods deal sends grocery stores, retailers plunging
-, NEW YORK
Jun 18, 2017-
Amazon’s $13.7 billion deal for Whole Foods sent grocery stores, big retailers, and food makers and distributors plunging on Friday. Energy companies rose while other stocks were little changed.
It’s rare for a single deal to have a big effect on the broader stock market, but Amazon’s agreement to buy Whole Foods Market did. Investors wondered if Amazon will do to grocery stores and supermarkets what it’s done to sellers of goods like clothing and office supplies: force them to make big changes or be supplanted. Neil Saunders, managing director of the research firm Global Data Retail, said Amazon is likely to push supermarkets and grocery stores to slash
prices, which will affect the companies that make and distribute those products.
“As Amazon enters the grocery market proper, it will put a lot more pressure on existing grocers,” he said. “Those grocers will respond by cutting prices and that will cut profits for the distributors.” Elsewhere, energy companies rose as oil futures bounced back from their lowest price this year and utilities and industrial and basic materials ground out modest gains. Thanks to a late gain, the Standard & Poor’s 500 index inched up 0.69 points to 2,433.15. The Dow Jones industrial average added 24.38 points, or 0.1 percent, to a record high of 21,384.28. The Nasdaq composite fell 13.74 points, or 0.2 percent, to 6,151.76. The Russell 2000 index of smaller company stocks shed 3.36 points, or 0.2 percent, to 1,406.73.
Online juggernaut Amazon said it pay $42 a share for Whole Foods. Whole Foods had been the target of sale rumors for about two months, and investors appeared to wonder Friday if another bidder may step in. Its stock jumped $9.62, or 29.1 percent, to a two-year high of $42.68. Amazon climbed $23.54, or 2.4 percent, to $987.71.
Many investors had expected Amazon to get into the grocery business. It already runs AmazonFresh, a grocery delivery service that costs $14.99 a month for members of its Prime service, and it recently opened a few grocery stores. Investors dumped retailers, drugstores, and even discount chains. Many of them have started trying to sell more groceries in the last few years to try to capitalize on shoppers’ yen for fresher, more natural food. That was a trend Whole Foods helped start.
Wal-Mart had its worst day in more than a year as it fell $3.67, or 4.7 percent, to $75.24. Costco took its biggest loss in almost six years as it sank $12.95, or 7.2 percent, to $167.11. Target tumbled $2.85, or 5.1 percent, to $52.61.
Amazon is a unique threat to many retailers because it doesn’t mind losing money for long stretches. The company might be able to sell inexpensive groceries as it makes its money from its cloud computing business and its gigantic online marketplace.
“Is the future of grocery store shopping going to be a point and click experience, or is it going to be going to a grocery store?” said Dan Morgan, senior portfolio manager at Synovus Trust.
Supermarkets and grocery stores had also plunged Thursday after Kroger cut its annual forecast. Kroger, which plunged 19 percent a day ago, lost another $2.27, or 9.2 percent, and hit a three-year low of $22.29. Sprouts Farmers Market skidded $1.41, or 6.3 percent, to $21.01.
Campbell Soup fell $1.91, or 3.4 percent, to $55.05 and General Mills dipped $1.73, or 2.9 percent, to $57.10. United Natural Foods dropped $4.36, or 11 percent, to $35.39.
Published: 18-06-2017 08:39