This morning, a (digital) earthquake hit the grocery sector with the announcement that Amazon is acquiring Whole Foods. In just a few minutes, billions of dollars in market cap were transferred from Walmart, Costco, Kroger, and others over to Whole Foods and Amazon. In fact, as of this writing, Amazon’s market cap is up more than the announced deal value of $13.7 billion — now that’s accretive!
Over at ChannelAdvisor, we think this deal makes a ton of sense:
- Grocery is a massive TAM, roughly $3 trillion globally by some estimates. It’s also a sector that’s ripe for digital disruption. The number of hours people spend shopping at a grocery store is staggering and dwarfs other retail “share of time” for consumers. Although Whole Foods’ share of the market is still relatively small, so was Amazon’s when it decided to get into books back in the 90’s…
- The culture at Whole Foods is highly customer-centric, much like Amazon.
- There’s likely significant overlap in their respective customer bases — higher-income, urban-centric consumers who value convenience, reliability and quality.
- With close to 450 stores in the U.S., this gives Amazon an interesting physical footprint that could be used, over time, to leverage some of that square footage to enhance its delivery capabilities. We believe Amazon is seeking to verticalize its logistics operations to include last-mile, and this adds a lot of “nodes” to that network.
We don’t think this will have any immediate impact for third-party sellers, but brands, especially FMCG/CPG/consumable brands, should pay close attention. Amazon is now suddenly in a much stronger position to shape the future of grocery and bricks-and-mortar retail.