In June 2017, Jeff Bezos’ Amazon.com Inc. acquired Whole Foods for $13.7 billion. The significance of this transaction to the grocery industry cannot be understated. As one market commentator noted “twenty years from now, Wall Street traders will look back and surely remember where they were when it happened.”
Shortly after the acquisition closed, Amazon slashed prices at Whole Foods to increase in-store shopping — some prices decreased by as much as 40 percent — and Amazon now offers all of its Amazon Prime members a 5 percent discount on groceries purchased at Whole Foods. Amazon also began offering many of Whole Foods’ private label products on its website, and some Whole Foods locations sell Amazon products, such as Kindle and the Echo (Amazon’s voice-controlled speaker system).
More significantly, however, are Amazon’s plans to use its acquisition of Whole Foods to conquer the online grocery delivery business. Amazon recently announced that its Amazon Prime subscribers will be eligible for free, two-hour grocery delivery from Whole Foods. Amazon is piloting this delivery program in four cities — Austin, Cincinnati, Dallas and Virginia Beach — but it plans to expand this service throughout the United States in 2018.
In response to this new Amazon-Whole Foods juggernaut, grocers have undertaken a flurry of M&A activity to ensure they can compete with Amazon’s ability to deliver groceries on-demand. Not long after Amazon completed its acquisition of Whole Foods, Target acquired grocery delivery service Shipt for $550 million. Texas-based grocer H-E-B recently acquired a delivery service called Favor and, in 2016, Walmart acquired Jet.com, which has a strong online grocery business. Albertsons, Safeway, Costco and Kroger also recently inked deals with Silicon Valley startup Instacart, which provides home-delivery grocery services. In an interview with Forbes, Instacart CEO Apporva Mehta, a former Amazon employee, described the Amazon-Whole Foods deal as a “thermonuclear bomb against the entire grocery industry” and noted that “when we look back [the Amazon-Whole Foods deal] may have been the turning point for Instacart.” Notably, Instacart recently raised an additional $200 million, which boosted its valuation to $4.2 billion.
With Amazon’s acquisition of Whole Foods, the online grocery delivery business is increasingly shaping up to be a battle of Amazon against everyone else. Margins in the grocery industry are slim, and brick-and-mortar retailers recognize their survival depends upon their ability to adapt to changing consumer habits by marketing their products online and providing speedy, reliable and cost-effective delivery services. It remains to be seen whether traditional grocers will be able to compete with Amazon on price and convenience but, less than a year after Amazon’s acquisition of Whole Foods, the landscape for the grocery business has irrevocably changed.