Amazon’s $13.7 billion acquisition of Whole Foods Market Inc. is its biggest-ever deal, which could have a huge impact on both the distribution sector and U.S. stock indices. The offered price for Whole Foods ($42 per share) was 27% higher than the stock price recorded the day before the deal was announced.
In 2016, 43% of online purchases in the United States were made via Amazon, but the company has long sought to bolster its dominance of the e-commerce sector with a physical presence in bricks-and-mortar premises.
Although some industry experts were surprised by the USD 14 billion purchase of the upscale chain, citing Whole Foods’ thin margins and sluggish growth, others point to the potential long-term benefits of acquiring food logistics expertise and to Amazon’s need to head off the threat of upstarts like Blue Apron.
Amazon is also expected to use the Whole Foods network as something of a laboratory, as Amazon CFO Brian Olsavsky explained:
“We believe there won’t be one solution, so we’re experimenting with a number of different formats, from physical pick-up points and Amazon Go to online ordering and delivery to your door through Prime Now and Amazon Fresh. We’ll see how customers respond.
“We think [Whole Foods] are very customer-centric just like us. They’ve built a great business focused around quality and customers, so we’re really glad to join up with them,” he added.
The acquisition is intended to help reduce last-mile costs for Amazon Fresh, the retail giant’s grocery delivery service, giving the company more than 400 convenient new locations. These are mostly in cities where Amazon Fresh is the most successful, and where consumers are able to pick up their groceries.
The WFM acquisition will reduce Amazon’s overhead and will help the company better penetrate the grocery e-commerce area. The deal could radically change the way people buy food, ushering in a new era for the retail sector.
Having established itself as the world’s premier online retailer, Amazon is now expanding its empire, leaving stock traders wondering what’s next for its share price.
Amazon started at $18 per share back in May 1997, with a market capitalisation of $440 million. The company survived the tech bubble, and today boasts one of the largest caps in the world at more than $475 billion, alongside other Silicon Valley titans like Apple ($800B), Google ($680B), Microsoft ($540B), and Facebook ($440B).
Year-to-date, AMZN has increased by more than 37%. Amazon’s recent rally to above $1,000 might herald a quadruple-digit future for this key stock, with some investment banks targeting $2,000 in the medium term. Amazon CEO Jeff Bezos, who owns more than 15% of the company, became briefly the richest person on the planet before the release of its latest earnings report, which was weaker than expected, but didn’t worry investors. The company is well known for its investments in new areas of activity, often at the expense of short-term profits.
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