By now, you probably heard about Amazon’s acquisition of Whole Foods. The Washington-based company will buy the conscious grocery store chain for a whopping $13.7 billion. This is Amazon’s biggest acquisition to date, and will help them further expand their burgeoning grocery delivery business, AmazonFresh.
For Whole Foods shoppers, Amazon.com shoppers, and people who hate going to the grocery store, this can and will mean cheaper food prices, easier access to food delivery, and tons more options on products. For Amazon shareholders, this means billions in new revenue and further growth of their stock in the next several years.
Yet for grocery stores, some of which are publicly traded companies, this could mean the end. While longstanding chains and mom-and-pop vegetable stands aren’t going anywhere for now, shareholders of these stocks are starting to react to Amazon’s big news — and things aren’t looking so bright.
Grocery store stocks are way down.
Supervalu ($SVU) and Kroger ($KR), two publicly traded supermarkets, are down since Amazon’s announcement on June 16th. Supervalu, which operates in the Midwest, decreased by 15.82% in the last few days. Kroger, the largest nationwide grocery-only chain, is down 8.67%. Though these chains have around 4,000 combined locations (and Whole Foods has a paltry 460 or so), competing with Amazon on price, delivery, and other consumer-friendly features could be a fool’s errand.
Walmart ($WMT) and Costco ($COST) are also down 4.15% and 9.58, respectively, since Amazon’s announcement. These stores don’t only sell groceries, though they make a considerable amount of money doing so. Walmart alone sells more groceries than Kroger, making it the biggest seller of groceries in America. Competing with and inevitably losing market share to Amazon could continue to hurt both companies’ revenue streams and overall profit.
Grocery stores sales aren’t going to change overnight.
Just because Amazon is buying Whole Foods doesn’t mean everyone will start shopping at Whole Foods. There are fewer than 500 nationwide Whole Foods locations, many of them packed and filled with pricier-than-normal groceries. Amazon will drive these prices down to compete with every other grocer around when the deal goes through, which will cause customers to change their shopping habits. Until then, shoppers will continue their routine of making a shopping list, buying everything on it, and adding a few candy bars to their basket.
Should shareholders worry about Amazon/Whole Foods?
Yes, as Amazon has a habit of disrupting every industry it enters. They sell more books than Barnes & Noble and caused numerous chains and independent booksellers to go out of business. Zappos, their online shoe store, put a noticeable dent in sales from Foot Locker and similar stores. By buying Whole Foods, decreasing prices, and adding features like fast and free shipping, Amazon could negate any reason to go to an old-fashioned grocery store or even your local Wal-Mart.
This could mean the end times for grocery chains. If fewer people shop at grocery stores and instead buy food on Amazon, supermarkets big and small will likely close over time, leaving shareholders in the red. Lack of competition could then let Amazon price their food at whatever they want.
It’s also bad news for Walmart and Costco. Both chains entice shoppers with low food costs. Said shoppers end up buying more than just groceries during their trip, which enables the stores to make more money than typical grocery stores. If Walmart and Costco lose shoppers to Amazon, they lose those extra sales and upsales. This would cause their stock to decrease in value.
Amazon’s deal for Whole Foods hasn’t gone through yet, and grocery stores have time to modernize and fight back. Doing so will be expensive and difficult, as millions of people already shop on Amazon for everything else. If these chains and independent stores can convince shoppers to keep visiting and spending with them and not Amazon, they could have a bright future. If they can’t, they won’t be around for much longer.