Gobbled: The Reasons Driving Amazon's Acquisition of Whole Foods

A brilliant strategic move, enabling Amazon's long desired move into groceries and retail with the premier brand in the market, which will allow it to set the bar for quality and pricing - then move down market as opportunity and its own imperatives dictate. JL

Dan Frommer reports in Re/code:

Amazon has been trying to get into the grocery business for years, launching the web-based AmazonFresh grocery delivery service, opening grocery pickup locations in Seattle and piloting a convenience store in Seattle that has no human employees.

A power move for Amazon into the groceries and brick-and-mortar retail industries: It just announced it’s buying high-end grocery chain Whole Foods Market for almost $14 billion in an all-cash deal — Amazon’s biggest acquisition by far.

Amazon has been trying to get into the grocery business for years, launching the web-based AmazonFresh grocery delivery service, opening grocery pickup locations in Seattle and piloting a convenience store in Seattle that has no human employees.

But this is a much bigger move, and Amazon plans to keep the Whole Foods brand and its CEO John Mackey in charge. Mackey — long a controversial executive — raised eyebrows this week in a Texas Monthly feature where he blasted his private equity investors as “greedy bastards.”

Beyond its activist investors, Whole Foods has other business problems, including slow growth, shrinking profits and increasing competition from traditional grocers, meal-kit services like Blue Apron and e-commerce plays like Amazon. Still, it has a strong, high-end brand and plenty of potential.

“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” Bezos said in a canned quote. “Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades — they’re doing an amazing job and we want that to continue.”

Amazon says it expects the deal to close in the second half of the year. But it will certainly face some regulatory scrutiny — especially considering Bezos’s complicated relationship with U.S. President Donald Trump, who said last year that Amazon has a “huge antitrust problem” and routinely rails against the Bezos-owned Washington Post for its sharp coverage. If the deal doesn’t go through, Amazon will have to pay Whole Foods a $400 million break-up fee, according to a filing with the Securities and Exchange Commission.

Bezos is still expected to join the president next week with other tech and business leaders at a “tech week” meeting in Washington, D.C.

Amazon shares are up about 3 percent on the news in early market trading; Whole Foods stock is up 27 percent, right around the $42-per-share deal price; Walmart shares are down 6 percent; and Kroger shares are down 13 percent.