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How Will the Amazon/Whole Foods Deal Change Grocery?

Timing is everything. I spent a few days out of the office in Delaware over the weekend, and of course, the biggest news we’ve seen in a while pops up: Amazon is purchasing Whole Foods Market for about $13.7 billion. And now, my post last week about Aldi and Lidl changing the game for established U.S. grocers seems to pale in comparison.

So, I was happy to see that our President and CEO Brian Todd did a great job breaking down how the merger is the biggest deal ever for a grocer when I came in on Tuesday morning. Of particular note is the point that Whole Foods and Amazon could could ring up as much as $22 billion in natural/organic/specialty sales annually, which, for lack of a better word (and at the risk of repeating myself), would represent a sea change.

According to the Specialty Food Association, specialty foods accounted for $120.5 billion in sales in 2016. This group of food producers already embraced Amazon, with 49% of those surveyed reporting they used a third-party platform like Amazon to fulfill sales. Although it’s probably impossible to determine the overlap and gaps between the numbers used by the Specialty Food Association and the BMO report referenced in Brian’s blog, the numbers provide a good baseline. Put simply, Whole Foods Market and Amazon could combine to sell about 18.3% of the nation’s specialty foods going forward.

However, this won’t be the only thing that the merger accomplishes. Whole Foods Market might launch a new brand with different standards after Amazon completes its acquisition, according to Whole Foods CEO John Mackey. Amazon plans to adhere to the grocery chain’s current standards for existing offerings, but Mackey suggested other formats could be developed, reported Reuters (June 20).

Meanwhile, a source claimed Amazon will attempt to revamp Whole Foods Market’s image to attract more low- and middle-income shoppers. Initiatives may include introducing technology to eliminate cashiers, though an Amazon spokesman denied that any job cuts were planned, reported The Times-Picayune (June 19).

Analysts note that the deal will provide Amazon with tools to build out its online grocery-delivery business, and it could give them a brick-and-mortar home for Kindle e-readers and Echo speakers. However, data may be the biggest part of the acquisition for Amazon. By combining online and in-store knowledge, analysts believe the companies will be in a better position to predict what types of goods to carry in each store, reported The Wall Street Journal (June 20).

Clearly, things are just beginning for this venture, but you can be sure we will be covering all aspects of the merger in our various publications. Stay tuned: seems like the next few months are going to be very exciting.