Following the news that Amazon and Whole Foods Market had entered into a definitive merger agreement in June under which Amazon will acquire WFM for around US$13.7 billion, negatives and positives surrounding the deal were raised, including a potential anti-trust hearing, how the move will impact on organic and natural product suppliers' higher standards and production costs, prices and profits, and that Amazon's online reach may benefit smaller and emerging organic suppliers.
Anti-trust fears were raised in Washington in mid-July, after US Representative and Democrat David Cicilline called on the chairman of the House Judiciary Committee requesting hearings over Amazon's acquisition of Whole Foods Market, and said it raised important questions concerning competition policy and the future of retail grocery stores.
Under the deal, Whole Foods said it will continue to operate stores under the WFM brand and source from trusted vendors and partners around the world. John Mackey will remain as CEO of Whole Foods Market and its headquarters will stay in Austin, Texas.
“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 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.”
“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,” said John Mackey, Whole Foods Market co-founder, and CEO.
And while some analysts expect Amazon to bring vast buying power to Whole Foods, WFM only has around 1.2 per cent of the US grocery market and Amazon less than one percent, compared with Walmart at 14 percent and Kroger at 7 percent.
In July concerns were raised by consulting firms and industry insiders that the price-driven Amazon acquisition could affect the high standards and production costs for organic and natural products and food suppliers, and whether suppliers and producers could maintain their margins and profits, and what this means for third-party distributors such as UNFI.
Michael Movitz of Illinois consulting firm The Movitz Group believes that Amazon will gain insights into the price differential between natural and organic products and mainstream products and cost structures.
James Thomson of brand consultancy Buy Box Experts, who previously worked for Amazon, said that the deal may give the combined grocery entity the negotiating power to keep squeezing national brands on pricing, while Amazon grows its private-label offerings and brings Whole Foods' natural brands into the online channel.
Another view is that Amazon's online reach may benefit smaller, emerging organic suppliers, while suppliers may be helped by high demand for organic products that also gives farmers unusual bargaining power.
In the 2016 fiscal year, WFM had sales of approximately US$16 billion and operated more than 460 stores in the United States, Canada, and the United Kingdom. However, WFM has reported seven straight quarterly sales declines at established stores. Amazon and Whole Foods expect to close the deal during the second half of 2017.