Austin’s homegrown grocer has joined the e-commerce corporate world.
Whole Foods Market, which got its start nearly four decades ago with a single store on a flood-prone stretch of North Lamar Boulevard, is being acquired by Amazon in an all-cash deal valued at $13.7 billion, the two companies said Friday.
Whole Foods, which today has 465 stores – including six in Central Texas – and 87,000 employees, will continue to be based in Austin, Amazon said, and Austin’s John Mackey, one of the chain’s founders, will remain CEO.
“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,” Mackey said in a written statement.
The acquisition is the biggest ever for Amazon, easily topping the e-commerce giant’s $1.2 billion purchase of online shoe retailer Zappos in 2009.
Seattle-based Amazon will pay $42 per share for Whole Foods — 27 percent more than Thursday’s closing price of $33.06. The acquisition is expected to close during the second half of this year, pending regulatory approvals.
“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” said Jeff Bezos, Amazon’s founder and CEO. “Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue.”
Amazon had initially looked at Whole Foods last year without making an offer. But the opportunity to finally be a player in the lucrative grocery sector — one of Amazon’s few weak spots — by instantly gaining an established brick-and-mortar presence from coast to coast, as well as in Canada and the United Kingdom, was apparently too tempting for it to walk away from.
“This move gives Amazon an instant physical presence in hundreds of markets with excellent complementing demographics,” said Ben Conwell, national e-commerce fulfillment practice leader for the Cushman & Wakefield commercial real estate firm and a former Amazon executive. “This is a tremendous shot in the arm for Amazon’s efforts to finally find a way to run its AmazonFresh and nascent retail store offerings profitably.”
Amazon’s decision to keep the Whole Foods name – a name that’s long been associated with healthy foods and better living – and not rebrand the stores is a smart move, said Kyle Bunch, managing director of strategy for local ad agency R/GA Austin.
“I’d expect this acquisition to be handled in many ways like the Zappos purchase in 2009: Amazon will integrate Whole Foods Market into their larger ecosystem and bring some best-in-class practices from the grocer into their operations, but allow the Whole Foods brand – and key leadership – to maintain a level of autonomy and identity distinct from the parent Amazon brand,” Bunch said.
The purchase comes after Mackey and his executive team have come under fire for stagnating sales. The grocer has even shuttered several underperforming stores in recent months — a rarity for Whole Foods — as it works to turn things around.
A March report from Barclays suggested Whole Foods had lost 14 million customers since 2015 to competing chains. In light of statistics like that, CFRA, an investment research firm, said it viewed the Whole Foods-Amazon deal “favorably.”
“Whole Foods is facing intense sales growth and margin pressures as competitors expand low-priced natural and organic food offerings,” CFRA analyst Joe Agnese said.
Growing impatient, two of the largest Whole Foods investors – Jana Partners and Neuberger Berman – publicly called for the retailer to make a number of changes earlier this year, including possibly putting itself up for sale.
Mackey, in a recent interview with Texas Monthly, called agitators such as Jana Partners and Neuberger Berman “greedy bastards” who were just looking to make a quick buck.
Still, he admitted to the magazine that Whole Foods needed to “evolve” — and it had started that evolution. Last month, the company replaced nearly half of its board of directors and hired a new chief financial officer. At the same time, it vowed to improve technology, centralize its buying to get better deals from distributors and roll out a loyalty program at all its U.S. stores.
The Amazon deal, experts said, will make doing all that much, much easier.
“In many ways, this could be the perfect marriage: Amazon has best-in-class technology and logistics, but has lacked a major physical footprint and a trusted brand within the world of food,” Bunch said. “Whole Foods Market has built an amazing brand around food and healthy living, but has lagged behind in terms of technology and integrated physical/digital experience.”
Bunch and others said they wouldn’t be surprised to see Whole Foods soon offer free grocery delivery or other premium services to Amazon Prime customers, as the two companies become interconnected.
“This is an earthquake rattling through the grocery sector, as well as the retail world,” Bankrate.com analyst Mark Hamrick said. “We can only imagine the technological innovation that Amazon will bring to the purchasing experience for the consumer. Now, we can see in hindsight that its recent dithering around the brick-and-mortar experience, as an experiment, was only a rumbling of the seismic event in the offing.”
In addition to Amazon, other companies that had reportedly been looking at Whole Foods included three of the country’s largest supermarket chains: Albertsons, Kroger and Publix. Those grocers should be concerned, Hamrick said, because Amazon is expected to cut prices at Whole Foods to win back customers.
“This will be a good deal for consumers, including those who might not have been doing business with Whole Foods in the past, either because of its positioning in the organic branding space or because prices have been seen as high,” Hamrick said. “Amazon can be expected to work to deliver better value to grocery customers, both online and within the brick-and-mortar space.”
Some analysts speculated Friday that Whole Foods could be just the beginning for Amazon’s entry into the world of brick-and-mortar retail. One name mentioned repeatedly was discounter Dollar General, as part of a possible strategy to reach lower-income shoppers who don’t typically patronize Whole Foods – a chain that’s tried for years to shake its “Whole Paycheck” reputation.
“The acquisition gives CEO Jeff Bezos a weapon to attract a customer he largely already caters to – the majority of Prime members make more than $100,000 per year – but if the goal is to fully compete against Wal-Mart and the low-end, then could Dollar General be next on Amazon’s buying list to go after an arguably larger part of the U.S. population?” Gordon Haskett analyst Chuck Grom said.
Whole Foods isn’t the only Austin company to find itself snapped up in a blockbuster deal. Some recent purchases:
NXP: $47 billion to Qualcomm
Whole Foods: $13.7 billion to Amazon
Freescale: $11.9 billion to NXP
SolarWinds: $4.5 billion to Silver Lake Partners and Thoma Bravo
HomeAway: $3.9 billion to Expedia
RetailMeNot: $630 million to Harland Clarke