Amazon unexpectedly announced this morning that it is paying $13.7 billion for Whole Foods in a move that is certain to dramatically shake-up the supermarket and grocery market in the United States. The stores will continue to be branded as “Whole Foods” and Amazon CEO Jeff Bezos said that the company is committed to continuing offering healthy foods to its customers.
In its most recent year, Whole Foods reported revenues of $15.7 billion and profits of $507 million. That means Amazon is paying about 27x earnings for the business. The overall grocery industry in the United States is $600 billion and Amazon had been taking steps to capture its share of it. It’s already launched Amazon Fresh Pickup in certain locations, which allow customers to pre-order and then pick up their groceries. It is also laying the groundwork for a network of physical locations, which Whole Foods will dramatically accelerate.
Whole Foods is likely happy to put to bed its life as an independent company. It’s been pressured by activist investors to do more to boost its stock price and had a major reshuffling of the Board earlier this year.
Rival chains caught in the crosshairs are selling off due to the anticipated competition from Amazon. Wal-Mart shares, the largest U.S. grocer, are lower by nearly 5% today, while supermarket chain Kroger’s shares are down by 12%. Today’s decline in Kroger shares follows a large decline yesterday after the company posted disappointing earnings and lowered its full-year outlook.
In addition to Amazon, U.S. grocers are also getting pinched by the expansion of discount chains like Aldi, which announced this past week they would be undertaking a major expansion in the country.
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