SEATTLE — Amazon.com said Friday that it would buy Whole Foods Market for $13.7 billion, its biggest acquisition ever and a huge move into the grocery business it’s been trying to crack for a decade.
The deal, expected to close in the second half of this year, gives Amazon — which has been experimenting with various physical store concepts to make establish itself as a food purveyor - an instant expanse of 460 high-end stores across the U.S., in Canada and in the U.K.
Whole Foods, which made its name retailing organic and fresh products, had been struggling recently with stepped-up competition from Costco Wholesale, Trader Joe’s and other grocers.
But in the hands of Amazon it would be a potent weapon against archrival Wal-Mart, the world’s largest retailer, which dominates the grocery world and has been stepping up its e-commerce. It’s also probably the largest untapped opportunity in e-commerce, said Cooper Smith, who tracks Amazon at L2, a research firm.
“If Amazon is going to sustain its current growth rate, it has to get into groceries,” Smith said.
Amazon agreed to pay $42 per share for the Austin, Texas-based grocer in an all-cash transaction, a 27 percent premium over Thursday’s closing stock price.
The acquisition of Whole Foods would be by far Amazon’s biggest purchase. Its previous record-breaker was the $1.2 billion acquisition of online shoe retailer Zappos in 2009.
It’s unclear how much integration there will be between Whole Foods’ operations and Amazon’s tech-driven business. Smith, the L2 consultant, said Amazon’s technology and operational efficiency could boost Whole Foods’ operating margins. At the same time, Whole Foods’ high-income customers are likely members of Amazon’s Prime loyalty program, making the acquisition highly complementary for Amazon, he said.
For now, however, it seems not much will change: Whole Foods will keep its brand and John Mackey, its current CEO, will remain in place. The acquisition would add Whole Foods’ 87,000 employees to Amazon’s bulging payroll, which as of the end of the first quarter had 351,000 people.
The grocery market, a $750 billion sector in the U.S., is one of the few provinces in the retail world that Amazon hasn’t managed to radically alter.
That’s in part because most shoppers prefer buying groceries, and especially fresh foods, in person. The logistics of moving fresh food are also complex.
Amazon launched AmazonFresh in 2007, a service that for a fee delivers groceries to customers’ homes but that has failed to make a wide impact.
More recently the company has deployed various physical retail concepts, some with the aim of making people comfortable with the concept of buying food from Amazon and eventually nudging them to move a big part of their grocery shopping online. Seattle has been the center of that experimentation.