Seattle — Online retail giant Amazon has agreed to acquire high-end grocery chain Whole Foods Market Inc. for $13.7 billion. The all-cash transaction amounts to $42 per share and includes the Austin, Texas-based grocer’s net debt. Whole Foods Market will continue to operate stores under the Whole Foods Market brand. John Mackey will remain CEO of Whole Foods Market, and the company’s headquarters will remain in Austin.
“This partnership presents an opportunity to maximize value for Whole Foods Market’s shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers,” says Mackey.
Completion of the transaction is subject to approval by Whole Foods Market’s shareholders, regulatory approvals and other customary closing conditions. The parties expect to close the transaction during the second half of 2017.
“It seems that Amazon, after all, is one of brick and mortar’s biggest believers — and for good reason. The grocery sector has been in major growth for some time now, and Amazon’s entry into the space will be a game changer,” says Rafael Romero, vice president on the retail team at Coral Gables, Florida-based CREC, an independent real estate firm. “It will be interesting to see how other high-end and organic foods-focused grocers will react. While I don’t believe that the industry saw this coming, Amazon has been active in building its own physical stores, and expansion through acquisition is an age-old business model.”
“It makes sense that Amazon would couple with a high-end grocer, as I feel that is more synergistic with its target customer base that wants quality, price and convenience, and is willing to pay for all three,” says Rick Scardino, a principal with Lee & Associates of Illinois and veteran retail broker.
Whole Foods Market locations are mostly in high-income areas, where consumers are more likely to pay subscriptions for home delivery services, according to grocery expert Joe McKeska of Oak Brook, Illinois-based Elkhorn Real Estate Partners, an A&G Realty company. This could present additional opportunities and synergies for Amazon to capitalize on.
Whole Foods Market, which maintains more than 460 stores across the United States, Canada and the United Kingdom, recorded $15.7 billion in sales for fiscal year 2016, up slightly from $15.4 billion reported in 2015. The company has struggled to stay competitive in recent years due to other grocers selling organic foods while offering lower prices, according to media reports.
Amazon’s stock price closed at $964.17 per share on Thursday, June 15, up from $717.51 one year ago. Whole Foods Market’s stock price closed at $33.06 per share yesterday, up from $30.82 one year ago.
— Kristin Hiller