Grocers facing a united Amazon-Whole Foods must adapt


Whole Foods Market Inc shares rose on Monday for the second straight trading session after Inc announced plans to buy the upscale grocer, with investors appearing to bet that rivals could step in to create a bidding war.

The impact of the announcement was also still rippling through a few other retail names on Wall Street on Monday.

Amazon agreed to buy Whole Foods for $13.7 billion on Friday.

Whole Foods' 465 stores in North America and the United Kingdom will give Amazon the brick-and-mortar presence it needs to succeed in grocery retail.

Amazon's takeover of Whole Foods sent the stock of competing grocery chains plummeting.

In a letter to customers, Whole Foods (NASDAQ:WFM) reached out to let shoppers know that even after the Amazon (NASDAQ:AMZN) buyout it will still be providing the same high quality organic products Whole Foods is known for.

In other words, the company's operating assets function as a kind of piggy bank whose goal is to extract profits that are then flushed out to shareholders.

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It's also not clear if Amazon will sell the technology to other companies - for the sake of being able to profit off this vertical when the competition's already sealed off from its customers anyways.

Culpepper, who owns Kroger Co shares, said Kroger is the company that would be most likely improve Whole Foods' efficiency, but that it would have difficulty matching Amazon's cash offer.

Shares of Whole Foods Market have gained 1.1% to $43.13 at 2:57 p.m. today, while has risen 0.4% to $991.50. "They're not playin" a bunch of BS games", Mackey said.

Aaron Turner, a Los Angeles-based analyst who covers Grubhub for Wedbush Securities, wrote in a note to clients Monday that the tech giant's plans to buy Whole Foods for almost $14 billion set it up for a larger food ordering and delivery play.

"Many will do anything to either make this acquisition more costly for Amazon, or prevent the asset from landing in Amazon's lap", Short wrote in a note to clients. "Whether you're hungry for better, or simply food-curious, we offer a place for you to shop where value is inseparable from values". "Others could certainly look at this and sharpen their pencils". At least that's what Whole Foods believes.

As sales declined at established locations, Whole Foods recently said it was hitting the brakes on expansion and that it no longer saw potential for 1,200 locations. This is the sad fate of essentially all mature businesses under the conditions of American financial capitalism and, indeed, Whole Foods' executive team - led by its founder John Mackey - has been under intense pressure recently from an activist hedge fund that bought shares and has been agitating for cost cutting and more payouts. A Whole Foods under Amazon's stewardship will nearly certainly accept lower profit margins than it does as an independent chain - and that spells trouble for everyone else in the grocery business.