When the news broke that Amazon had agreed to buy Whole Foods for $13.7 billion, the retail food sector went a little bananas.
The stock prices of large food retail chains, such as Costco, tumbled a bit.
And this headline from Business Insider helps explain it: Amazon is acquiring Whole Foods — and Walmart, Target, and Kroger should be terrified.
The message is this: The brick-and-mortar retail business that pioneered organic, fresh food and the country's dominant e-commerce company make a powerful combination.
Whole Foods was quick to point out, in a statement, that its stores will continue to operate under the Whole Foods Market brand, that its headquarters will remain in Austin, Texas, and that John Mackey will stay on as CEO.
Nonetheless, a lot is about to change. We spoke to food analyst David Portalatin of the NPD Group, a market research company.
A Moody's analyst described the Amazon-Whole Foods deal as a "transformative transaction, not just for food retail, but for retail in general." Do you agree?
Yes. The world's largest e-commerce company is now a very substantial brick-and-mortar food retailer. I think ultimately, this is good for consumers.
Convenience. More of our shopping visits are digitally enabled, and this is going to continue to grow. Increasingly, we'll be doing everything from home.
Take the restaurant sector, where customer traffic is flat, digital orders are up 45 percent over the last two years. So when you give consumers the flexibility and power to procure the goods they want, and have them delivered straight to their front door, that's a winning proposition.
Americans have been slowly moving toward online grocery shopping. But there have been challenges. For example, when it comes to buying fresh food, we like to feel, see and touch the fruits and vegetables we're buying. At least, I do! Has that been a problem for Amazon?
Fresh foods are the final frontier for Amazon. And figuring out how to get it to your front door is the ultimate inconvenience for consumers. In order for Amazon to get the volume growth they are looking for, fresh foods has to be part of the equation. This deal gives Amazon a major foothold in that space. Whole Foods gives Amazon a tremendous amount of credibility around the quality of the food and the reputation they have with their customer base.
Especially among millennials, is that right? You point out that 24 percent of millennials bought something from Whole Foods last year.
Yes. That's an extraordinary penetration for a supermarket chain with just 431 stores. The deal now gives Amazon control of those 431 stores, nearly all of which are in neighborhoods that are more affluent and younger than America as a whole. Those stores solve much of Amazon's "last mile" delivery challenge for fresh groceries.
What do you think it will be like to walk into a Whole Foods 10 years from now? Will we just be stopping by to pick up what we ordered online?
I think it's going to look a lot different than it looks today, for sure. The stores will evolve to become more experiential. The stores could teach cooking skills, hold classes and educate about food. There could be all kinds of initiatives to repurpose the brick-and-mortar store.
There's also the "grocerant" trend — a blending of grocery stores and restaurants. Whole Foods already has a lot of in-store dining and lots of prepared foods.
Yes, we'll continue to see prepared foods in demand. Tonight, 1 in 10 entrees served in Americans' homes will be a "prepared, ready-to-eat" item purchased outside the home. Again, it's about convenience.