Online giant Amazon a set to shakeup the food market with the $13.7 billion acquisition of US company Whole Foods. This is a potential game changer for the industry although there is speculation that Walmart could come forward with a counter offer as all attention focuses on the US food industry. Some analysts have already downgraded other food retailers and food companies despite the fact that the Amazon bid has not yet been accepted by shareholders.
Online grocery shopping is untapped market
When you bear in mind the amount of goods which we buy online many will be surprised to learn that just 12% of US grocery shoppers bought online during 2016. This market is absolutely huge and Amazon has the name and the reputation to push forward with what will be a game changer for the industry. The acquisition of Whole Foods seems to be a perfect fit for Amazon as the company has gone through a series of reorganisations and has been under pressure from shareholder activists to sell up. Amazon has a reputation for spending wisely and the company must see serious potential to shell out $13.7 billion.
Recent data suggest that millennials were the largest group of consumers to make use of online grocery shopping services last year. Indeed all the millennials in the 25 to 34 bracket were twice as likely to buy online. We are starting to see a change in the way in which people purchase grocery goods with many now more than happy to take the online option and home delivery service.
Will Amazon eat away at margins?
Historically Amazon has tended to increase sales numbers and reduce margins as well as introducing an array of efficiency savings. While Whole Foods is currently seen as an expensive store based company (the company has been extremely slow to grab the online nettle) just watch what Amazon will do to turn the business around. This potential change to the way in which the grocery industry operates has already seen a number of major players downgraded by analysts and their shares follow suit.
It is no surprise that Amazon has been looking to expand its grocery operations as this has been mentioned on numerous occasions over the last couple of years. There are already a number of pilot schemes ongoing in places such as London with the opportunity to acquire fresh food delivered direct to your doorstep. We can only assume that Amazon has had positive feedback from the pilot schemes and is now looking to push ahead with a major investment in the food industry.
Will Amazon succeed?
As more and more people look to buy their groceries online there is no doubt that Amazon has a name and reputation which goes before all others. The company has in the past fought to reduce prices and improve deals for online customers. We can safely assume that bulk buying in the food industry will see prices fall, attract more online customers and ultimately detract from expensive store based operations.
At this moment in time nothing is certain with regards to the acquisition of Whole Foods but already the industry is quaking in its boots!