Amazon vs. Walmart: Bezos Goes for the Jugular with Whole Foods Acquisition

Key Highlights

  • On Friday, June 16, Amazon announced it was acquiring Whole Foods Market for $13.7 billion, the largest acquisition in the online retailer’s history.
  • Just a few hours later, Walmart announced the completion of its $310 million acquisition of the men’s apparel direct-to-consumer retailer Bonobos.
  • Whole Foods’ prime real estate allows Amazon to finally get into last-mile delivery, something the online retailer has historically struggled to do. Whole Foods has a 456-store footprint in the US, Canada, and the UK, mostly in upmarket, urban areas.
  • The significant implications of the Amazon/Whole Foods deal for the grocery and retail spaces explain why many retailers’ stocks took a big hit after the news (down 5-10%).
  • Walmart is pushing a strategy to buy vertically integrated companies because of higher gross profit margins. Whole Foods has some private label, but it accounts for only around 15% of revenues.
  • Groceries is an important category – a recent report by the Food Marketing Institute (FMI) found that US grocery sales could grow five-fold over the course of the next decade, with spending estimated at more than $100 billion by 2025.
  • The FMI survey highlighted how 69% of shoppers valued the store’s reputation when choosing which store to buy groceries at, making Whole Foods’ brand an important asset for Amazon to leverage.
  • Walmart is the nation’s largest seller of groceries, selling over $170 billion last year, and the category is a key driver of store traffic and customer loyalty. Walmart has invested and tested in click-and-collect programs, stand-alone grocery pick-up sites, and even testing of an automated kiosk for 24-hour pick-up.
  • Many voice concerns that not only do Walmart and Bonobos customers not overlap, but that Walmart’s acquisition may in fact push several away.

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Choosing the Right eCommerce Business Model to Sell Your Product

The shift from offline/brick-and-mortar retail to online eCommerce is a trend that has garnered attention and commentary for much of the last two decades. What was once a niche market focused on selling a few select products and services has ballooned into a nearly $2 trillion industry whose influences dominate the retail industry in more ways than ever before.

Despite the noise, penetration of overall retail sales continues to be in the sub-10% range, particularly outside of the US. Calls for a radical transformation in the retail industry so far have largely not been borne out, and offline retailers have over the last 10-15 years continued to do well. In fact, the list of the world’s largest retailers continues to be dominated by offline retailers, or retailers who were born offline and continue to derive most of their sales from physical retail locations.

However, while evolve-or-die style calls for strategic shifts to eCommerce may have in the past been overblown, recent data and news suggests that this issue is perhaps more pertinent than ever before. A recent article in the New York Times for instance highlighted that “store closures […] are on pace this year to eclipse the number of stores that closed in the depths of the Great Recession of 2008.” Similarly, retailers are going bankrupt at record rates, and “in a little over three months, fourteen chains have announced they will seek court protection […] almost surpassing all of 2016.”

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