Whole Food shares keep rising, leading to bidding war speculation

Posted June 20, 2017

Amazon announced on Friday that it was offering to pay $13.7 billion in cash for Whole Foods - a deal that values the chain of organic grocery stores at $42 a share. Its $230 billion market value dwarfs listed USA grocers, including Target, Kroger and Sprouts Farmers Market, as well as private Albertsons. However, we now think that a Whole Foods/Amazon tie-up could further exacerbate the pressure as we expect Amazon to re-position Whole Foods more aggressively at lower average price points, leading to additional margin degradation in the space. The upscale grocery chain recently replaced much of its board, added a new CFO and developed plans to slash costs and tweak operations. Even saying Amazon is a retailer goes against the grain for a bricks and mortar zealot like me.

The internal activist battle at Whole Foods may be the thing most likely to gum up the works for Amazon, but we'll have to wait for the response from the fund to be certain.

"Although industry revenue is only set to rise at an annualized rate of 0.8% over the five years to 2022, the transaction will allow the online retail giant to boost not only its grocery sales, but expand its brick-and-mortar presence", IBISWorld Industry Analyst Madeline Hurley said in a statement emailed to press.

How does Walmart, the world's largest retailer, see its future in light of Amazon's moves?

Three years ago, Whole Foods (wfm) started dabbling with online ordering for pickup, and then teamed up with Instacart to handle delivery. "We'll see what happens now that Amazon will have Whole Foods shelf space to experiment with, IRL". Just two years ago, Whole Foods CEO John Mackey told Bloomberg BusinessWeek that Amazon's foray into grocery delivery would be "Amazon's Waterloo".

Fitzgerald, who has a buy rating on the stock with a 12-month price target of $1,150 (16% upside from the current share price), suggests that Amazon could even offer a special 1-hour grocery delivery service. "Without a physical presence, retailers can not create branded, immersive experiences that sell, or leverage the logistics and delivery services they've invested significant resources to build, to their full potential".

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Ocado declined to comment on the Amazon-Whole Foods takeover, but a source close to the company said it could work in its favour, igniting interest in its services from United States grocers who will want to ensure their digital operations can compete.

"That (Whole Foods 365) may become a big problem for Wal-Mart", Grant said. Additionally, the focus of FedEx and UPS is B2B volume, with traditional e-commerce accounting for a relatively small proportion of their businesses. The chain's high standards for how animals are treated make the higher prices worth it, she said. Short reasons that this theoretically means that such a company could pay more for Whole Foods than Amazon could. The company has over 4,000 stores compared to around 400 for Amazon, and that's a big advantage if Walmart can move quickly and take advantage of the "last mile" and getting those products from the store to consumers' homes.

Amazon is planning a bloodbath at Whole Foods, according to a report.

The Whole Foods Markets story is the dominant one around Amazon stock right now, but it would be wrong to think it's the main driver of the firm's stock price.

"This is an natural disaster rattling through the grocery sector as well as the retail world", said Mark Hamrick with Bankrate.com. "Kroger and Wal-Mart will be impacted as their customers will defect to Amazon".

Does Amazon stock depend on Whole Foods?