Print Edition - 2017-06-19  |  MONEY

Amazon deal piles pressure on retailers

- Agence France-Presse, NEW YORK

Jun 19, 2017-

Amazon’s deal to buy Whole Foods Market injects even greater pressure into the food and grocery sectors at a time when e-commerce is already roiling retailers.

The tech giant’s $13.7 billion acquisition of the upscale, niche grocery chain was described as a seismic event by industry analysts, despite Whole Foods’ relatively small size.

The deal prompted jokes and semi-serious posts on Twitter about a space-age shopping era with Amazon’s artificial intelligence programme Alexa replacing cashiers and ordering drone deliveries of kale.

Joking aside, the purchase will mean a serious disruption: rather than a brick-and-mortar store getting into e-commerce, in this deal an online behemoth will be moving onto Main Street, and in one fell swoop acquiring more than 450 stores in the US, Canada and Britain.

It also is expected to hasten existing efforts by grocers to make shopping more smartphone-ready, sell more private label and specialty foods and overcome the hurdles of home-delivery of groceries.

Amazon’s strong record of keeping prices low adds pressure on supermarket chains that may be forced to consolidate to cut costs in a bid to keep up.

That could in turn spur mergers among large food manufacturers that feel compelled to negotiate with heftier clients.

“It’s a big deal because of Amazon and what Amazon can bring to the game,” said Joe Agnese, analyst at CFRA Research.

“Amazon is thought to bring change and an acceleration of change, and so having the presence of Amazon there may lead to a faster moving push into food delivery and lower prices.”

Amazon already does some grocery deliveries through Prime and some other programmes, but has the chance to boost home deliveries of Whole Foods’ “365 Everyday Value” products and potentially “transform the physical retail experience” through checkout-free shopping, according to JP Morgan Chase. That push also will reverberate through the broader industry.

New competition from Amazon will “exert margin pressure on everybody else and force everybody to be innovative and consolidate,” Agnese said.

Published: 19-06-2017 08:31

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