Amazon deal for Whole Foods could bring retail experiments

Going full throttle into groceries by announcing a $13.7 billion deal for Whole Foods on Friday, Amazon gets the advantage of using the stores as mini-distribution hubs to deliver items to customers.

The deal valued at $13.7 billion unites the company that persuaded people to buy books - and then everything else - online with the grocery-store chain that fell behind as shoppers found "good enough" alternatives to the organic and natural foods it helped popularize.

Amazon expects to reduce headcount and change inventory to lower prices and make Whole Foods competitive with Wal-Mart Stores Inc. and other big-box retailers, according to a person with knowledge of the company's grocery plans. Bank of America Corp also provided financing to Amazon, while Evercore Partners Inc advised Whole Foods.

Charlie O'Shea, Moody's lead retail analyst, said the deal could be "transformative, not just for food retail, but for retail in general". It paid $3.3 billion a year ago for online marketplace Jet.com and offers curbside pickup of online grocery orders in more than 600 of its 4,700 US stores. Whole Foods itself had launched an offshoot chain named after its "365" private label brand in a nod to the popularity of no-frills chains. Under that strategy, Whole Foods may see numerous products it stocks one day shipped to customers in much the same way, skipping the store stock room entirely and heading directly to customers. Walmart, which has the largest share of the USA food market, has been working on lowering prices, while Target has been struggling to turn around its grocery business. "That's what shoppers are looking for", he said. The stores will evolve to become more experiential. That could force other supermarkets to follow or lose customers, Astrachan said.

Will this megamerger transform the grocery store as we know it?

The stock prices of large food retail chains, such as Costco, tumbled a bit. But online delivery of groceries has been tough to pull off. But she would never buy food online, she said.

That was feeling of Taylor Malooly, 19, a University of Texas student at Whole Foods in Austin, who said a Whole Foods delivery service would have to be fast if he were to try it.

Yes, we'll continue to see prepared foods in demand.

The deal comes a month after Whole Foods announced a board shake-up and cost-cutting plan amid falling sales. It could have built up its groceries business without acquisitions, said Neil Saunders, managing director of GlobalData Retail, but that would have been costly and time-consuming.

The Amazon- Whole Foods deal will certainly pressurize its competitors.

Mackey views the chain as a "mission-driven" company in improving American food, and he and his team have grown Whole Foods through a series of acquisitions of like-minded food companies, including the Fresh Fields chain that started in the Washington, DC area.

That, in turn, could help Amazon do better with pricing and promotions, branding and the overall store experience, said Robert Hetu, a retail analyst at Gartner. Amazon has been gradually backtracking into the physical stores business, including strategies to open grocery and convenience stores. The store uses sensors to track items as shoppers put them into baskets or return them to the shelf. Shoppers skip the checkout line, and their Amazon accounts get automatically charged.

Both Amazon and Whole Foods cater to younger consumers including millennials as well as the affluent.

What do you think it will be like to walk into a Whole Foods 10 years from now?

Whole Foods, founded in 1978, saw its stock peak in 2013 at $65.24. "I'm shopping here anyways", shopper Alina Gura said at a Whole Foods in West Hartford, Connecticut.

"Amazon has an opportunity to give Prime members automatic entry in a new Whole Foods benefits program", added Franson.

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