Amazon.com Inc. last week Friday, June 16, made a $14 billion purchase of grocery chain Whole Foods Market Inc.
Following this move the largest e-commerce company announced its intention to take on Wal-Mart in the brick-and-mortar world.
Last year, Wal-Mart Stores Inc bought online retailer Jet.com for $3 billion, marking a crucial moment as the world’s largest brick-and-mortar retailer, after years of ceding e-commerce leadership to arch rival Amazon.
The two deals make it clear that the lines that divided traditional retail from e-commerce are disappearing and sector dominance will no longer be bound by e-commerce or brick-and-mortar, but by who is better at both.
Amazon’s purchase of Whole Foods also brings disruption to the $700 billion U.S. grocery sector, a traditional area of retailing that stands on the precipice of a ferocious price war. German discounters Aldi and Lidl are battling Wal-Mart, which controls 22 percent of the U.S. grocery market, with each vowing to undercut whatever price the others offer.
The stakes are highest for Wal-Mart. Amazon’s move aims at the heart of the Bentonville, Arkansas-based retail giant’s business – groceries, which account for 56 percent of Wal-Mart’s $486 billion in revenue for the year ending Jan. 31.
With the deal, Whole Foods’ more than 460 stores become a test bed with which Amazon can learn how to compete with Wal-Mart’s 4,700 stores with a large grocery offering that are also within 10 miles (16 km) of 90 percent of the U.S. population.
Amazon is expected to lower Whole Foods’ notoriously high prices, enabling it to pursue Wal-Mart’s customers. The push comes as Wal-Mart is headed in the opposite direction – going after Amazon’s higher-income shoppers with a recent string of acquisitions of online brands such as Moosejaw and Modcloth and on Friday, menswear e-tailer Bonobos.
Wal-Mart may be ready. In preparation for the grocery price war, Wal-Mart in recent months has cut grocery prices, improved fresh food and meat offerings, modernized shelving and lighting in its grocery aisles, and expanded its online grocery pickup service, Reuters reports.
Whole Foods 365 offers private-label goods and lower prices than typical Whole Foods stores, and is targeted at younger, value-conscious shoppers. Amazon could provide the financial capital and tactical ability to build that into something big.