Editor’s note: Amazon became a major player in the supermarket business overnight after the online retailer said it was buying upscale grocery chain Whole Foods for US$13.7 billion, including debt, a premium of 27 percent over Whole Foods’ presale share price. The purchase would be Amazon’s biggest ever. We asked economist Roger Meiners to explain what Amazon gets out of it and why Whole Foods agreed to sell.
Why would Amazon pay so much for bricks and mortar?
Buying Whole Foods gives Amazon 465 premier locations immediately. Whole Foods will continue to sell food, but as an Amazon subsidiary there is a chance to experiment with other facets of Amazon’s retailing experience. In other words, Amazon sees more than just a grocery subsidiary in Whole Foods.
Amazon has already been experimenting on its own with, for example, Amazon Go, which opened in its hometown of Seattle as a beta program for the company’s employees. Shoppers must use the Amazon Go app, which features “just walk out” technology that automatically detects all the products they’ve taken off the shelves. Amazon then simply charges their account for whatever items they leave with.
So with Whole Foods, Amazon could try this with prepared foods. Busy people could walk in on their lunch break, pick up what they want and walk out without having to wait in a checkout line. And now Amazon can do this on a much larger scale and won’t have to build a network of stores from scratch.
In addition, Whole Foods has a strong brand and above-average income clientele willing to pay a premium for groceries – and perhaps much else. After all, its nickname isn’t “whole paycheck” for nothing.
Is there a risk that increased automation will lead to job losses at Whole Foods, an issue facing the entire economy in coming years as more tasks are replaced by robots? I don’t think this is a big risk for Whole Foods. There’s only so much automation can do in the grocery business. The company will still…