Amazon Deal Seen as Disruptor of Grocery Business

Amazon’s deal to buy Whole Foods Market injects even greater pressure into the food and grocery sectors at a time when e-commerce is already roiling retailers.

The tech giant’s $13.7 billion acquisition of the upscale, niche grocery chain was described as a seismic event by industry analysts, despite Whole Foods’ relatively small size, AFP reported.

The deal prompted jokes and semi-serious posts on Twitter about a space-age shopping era with Amazon’s artificial intelligence program Alexa replacing cashiers and ordering drone deliveries of kale.

Joking aside, the purchase will mean a serious disruption: rather than a brick-and-mortar store getting into e-commerce, in this deal an online behemoth will be moving onto Main Street, and in one full swoop acquiring more than 450 stores in the US, Canada and Britain.

It also is expected to hasten existing efforts by grocers to make shopping more smartphone-ready, sell more private label and specialty foods and overcome the hurdles of home-delivery of groceries.

Amazon’s strong record of keeping prices low adds pressure on supermarket chains that may be forced to consolidate to cut costs in a bid to keep up.

That could in turn spur mergers among large food manufacturers that feel compelled to negotiate with heftier clients.

 Antitrust Concerns

“It’s a big deal because of Amazon and what Amazon can bring to the game,” said Joe Agnese, analyst at CFRA Research. “Amazon is thought to bring change and an acceleration of change, and so having the presence of Amazon there may lead to a faster moving push into food delivery and lower prices.”

Analysts generally praised the deal as a smart buy for Amazon, but not everybody was applauding. “Government antitrust enforcers should block this merger,” said Barry C. Lynn, director of the Open Markets Program at New America, a Washington think tank.

He warned that Amazon already exerts dangerous influence “over America’s markets for books and music, and is fast consolidating control over other key flows of information and ideas. This private corporation already dominates every corner of online commerce, and uses its power to set terms and prices for many of the most important products Americans buy or sell to one another,” Lynn said. “Now Amazon is exploiting that advantage to take over physical retail.”

Whole Foods accounts for just 1.2% of the US food and grocery market share, while Amazon has just 0.2%, according to research firm Global Data Retail.

The biggest player in the fragmented market is Wal-Mart with 14.5%, with Kroger second with7.2%.