Unless you’ve been living under a rock, you will have heard in the news that Amazon.com has recently purchased Whole Foods in an exciting, market-shifting deal valued at $13.7 billion. Once the deal agreement was officially announced back in June 2017, Amazon shares shot to new all-time highs of $1,017 during intraday trading. Now in the beginning of September, Amazon stock (NASDAQ: AMZN) is down a little, but still priced at close to $1,000 per share as of Sept 5th, with 1Y growth rates clocking in over 24%.
Changes are already underway in Whole Foods supermarkets across the nation. But if you’re Jeff Bezos, you don’t see the Whole Foods take-over as a ‘get-rich-quick’ type of deal; in fact, quite the opposite. While we’re all enjoying the significantly cheaper organic baby kale and tucking into sustainably farmed vegetarian-fed beef, Chief Executive Bezos is not looking at next year, but is rather viewing the acquisition as part of his overall vision and strategy for a much longer time period… more like 20 years down the road.
If you’re an investor in Amazon, or thinking about become one, here’s a look at the benefits of the acquisition for AMZN holders and how they might play out as part of Bezos’ vision:
Customers: Whole Foods, which carries the nickname “whole paycheck”, has long been associated with premium product prices. Before the take-over it was hard to walk out the store without spending at least $30. But since the deal, Amazon has slashed many prices in the store and these reductions in prices will hopefully broaden the customer base for Whole Foods. This will be important as part of Amazon’s plans to try and gain market share in the grocery market and will hopefully not only entice newer customers, but also increase the average spend of existing customers.
Prime Membership: With the acquisition of Whole Foods, Amazon has instantly opened up a whole world of potential members for its Amazon Prime service. It’s the prefect platform for advertising and Amazon didn’t hesitate to start some of its market campaigns from day 1: Amazon is already selling Echo in Whole foods stores. And, by integrating the Whole Foods Market Rewards program with Amazon Prime, the e-commerce behemoth is slowly ramping up the importance of Prime in their customers’ everyday lives. Most of the existing Whole Foods customer base is likely to be Prime subscribers already, but the integration offers more than just new subscribers: it also offers data. Amazon will have new access to personalized data about customer shopping habits, which will be instrumental to the company’s future business plans and targets for growth.
Logistics: With 400-plus retail locations in dense-city neighborhoods, Amazon can use its new real estate base to its advantage. The stores could be used for delivery warehouses for Amazon (and particularly Amazon Fresh) in areas that would have been expensive to build in otherwise. The logistics experience that the Whole Foods stores will bring with them will also be key, giving Amazon a stronger position against upstarts like Blue Apron.
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