KEY POINTS

  • Amazon announced the signing of a definitive agreement to acquire Whole Foods Market, including the company’s net debt, for $13.7 billion in cash. The transaction is expected to close in the second half of 2017.
  • Whole Foods, founded in 1978, is the leading natural and organic foods supermarket, with sales of approximately $15.7 billion in fiscal year 2016. The company has more than 460 stores in the US, Canada and the UK. 
  • The two companies’ statement included few details. Whole Foods CEO John Mackey said that the deal represents an opportunity for Whole Foods to maximize value for shareholders while “extending [its] mission and bringing the highest quality, experience, convenience and innovation to [its] customers.” Whole Foods will continue to operate under its own brand and Mackey will remain with the company.
  • Amazon’s grocery sales were estimated at $350 million in the first quarter of 2017, representing an annual run rate of $1.4 billion.
  • As the acquisition has not yet closed, we can only speculate regarding Amazon’s plans for combining the Whole Foods stores with its own AmazonFresh service, using the stores as distribution hubs to expand its Prime Now service and integrating the technology currently being tested in its Seattle Amazon Go store.

Amazon to Acquire Whole Foods for $13.7 Billion in Cash

Amazon announced the signing of a definitive agreement to acquire Whole Foods Market for $13.7 billion in cash, which includes the assumption of roughly $1 billion in Whole Foods’ net debt.

The two companies’ statement included few details. Whole Foods CEO John Mackey said that the deal represents an opportunity for Whole Foods to maximize value for shareholders while “extending [its] mission and bringing the highest quality, experience, convenience and innovation to [its] customers.” Whole Foods will continue to operate under its own brand and Mackey will remain with the company.

The transaction, which is expected to close in the second half of 2017, requires approval by Whole Foods’ shareholders as well as by regulatory bodies and is subject to other customary closing conditions.

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Creating an E-Commerce/Brick-and-Mortar Powerhouse

The deal would combine e-commerce titan Amazon, which recorded net sales of $79.8 billion in North America last year, with Whole Foods, which had sales of $15.7 billion in fiscal 2016 (ended September). In fiscal 2016, 97% of Whole Foods’ revenues came from the US and the company’s net income was $507 million.

According to the US Bureau of Economic Analysis, consumers bought food and beverages for at-home consumption at an annual rate of $937.5 billion in 1Q 2017, which compares to a $782.7 billion restaurant industry, according to data from the National Restaurant Association. Grocery store sales amounted to $627.0 billion in 2016, according to the US Census Bureau.

Amazon’s total grocery sales were $350 million in the first quarter of 2017, according to OneClickRetail.com; that would equate to $1.4 billion annualized. Adding Whole Foods’ fiscal 2016 revenues and Amazon’s grocery run rate indicates that the combined entity would generate about $1.7 billion in annual revenues. Still, the combination would account for only 3% of the US grocery market.

Within organics, Whole Foods calls itself the leading natural and organic foods supermarket, and the first national “certified organic” grocer. Total US organic food sales were $47 billion in 2016, according to the Organic Trade Association, putting Whole Foods’ share at about 33%.

 

Amazon’s Acquisition History

The Whole Foods acquisition would be Amazon’s largest to date. The company’s acquisitions have averaged $520 million (excluding Whole Foods), based on available data. Amazon has averaged about 4.5 acquisitions per year over the past seven years. A table of selected acquisitions is included below.

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Our Take

As the acquisition has not yet closed, we can only speculate regarding Amazon’s plans for combining the Whole Foods stores with its own AmazonFresh service, using the stores as distribution hubs to expand its Prime Now service and integrating the technology currently being tested in its Seattle Amazon Go store.


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