When I think of Amazon (NASDAQ: AMZN), I also think of world domination.

Maybe that’s a little extreme. Amazon continues to grow while it also dabbles in a little bit of everything — in industries like tech, books, retail, and delivery service… just to name a few. It’s a giant.

It seems like Amazon is always announcing some new way to shape an entire industry that it has no experience in. To me, this seems very ambitious, and for a split second, it makes me wonder if the company is biting off more than it can chew — but it never is. Instead, its market valuation continues to grow.

So, it came as no surprise when Amazon announced on Friday, June 16, 2017, that it would be acquiring grocery store chain Whole Foods (NASDAQ: WFM).

Amazon’s $13.7 billion Whole Foods purchase is the company’s biggest purchase to date. The amount of money that Amazon is investing into the grocery store business shows that it’s serious about expanding into the industry.

To get an idea of how huge this purchase was, just take a look at some of Amazon’s other acquisitions…

Amazon has acquired nearly 80 other companies such as its video game streaming site, Twitch; audiobook service, Audible, and online shoe retailer, Zappos (which it bought for $1.2 billion… a small price tag in comparison to the $13.7 billion for Whole Foods).

Amazon already controls 43% of online retail sales in the United States. So, imagine the force it could have on the U.S.’s already $800 billion grocery business.

The purchase of Whole Foods isn’t Amazon’s first step into the grocery business. As you may know, it’s been working toward opening its own version of “convenience stores” called Amazon Go. The first location will be in Seattle, WA, and it’ll be the first-ever store without cashiers and with no checkout required.

Basically, customers will use the Amazon Go app when they enter the store. They’ll take items off the shelves, and, with machine learning and artificial intelligence (AI), the store will know what items were removed from the shelves. The items will then be immediately added to the customer’s “cart.” And as soon as the customer is done shopping, they can walk right out of the store and the items will be charged to their Amazon account.

With the Whole Foods acquisition, Amazon will be gaining more than 430 physical stores that reside in urban locations, which will mean a lot of foot traffic.

However, Statista reported that Whole Foods’ market share of food and beverage purchases in 2016 for the U.S. was only 1.7%. Wal-Mart took the lead with 17.3% of the market share, and Kroger (NYSE: KR) came in second with 8.9%. Whole Foods isn’t the biggest player in the grocery business, which may lead you to think that Amazon might be interested in something else… like its customers.

Whole Foods customers are most often millennials and Gen Xers who’ve grown up with the luxury of Amazon and who probably have Amazon accounts for themselves.

And if they have Amazon accounts, that means they probably know the convenience that they can get with an Amazon Prime account — where you have the option of one-day or two-day shipping.

Now, you can see the appeal that Amazon might have for purchasing Whole Foods. It would have the opportunity to expand into an industry that’s a necessity — everyone needs food.

Not only that, but Whole Foods customers mostly consist of generations who probably have Amazon accounts, so it would be a smooth transition and more convenient for them to order online from a grocery store that they regularly go to and have those groceries delivered through Amazon.

According to the Food Marketing Institute and Nielsen, a quarter of American households already buy some of their groceries online.

And that’s true, the last thing I want to do after my work day or on my weekends is to go to the grocery store and dodge other people who are doing the same exact thing. If I had the access and ability to order my groceries online and have them delivered to my house on the same day, then I’d be able to save a lot of valuable time.

One thing for sure is that Amazon’s announcement on Friday has investors feeling optimistic about Amazon’s bid on Whole Foods and pessimistic about other grocery stores. Amazon’s shares rose 3.8% to $1,000.97 on Monday (June 19, 2017) morning. Kroger’s fell 9.1% to $22.33, and Whole Foods rose 31% to $43.31.

It’s going to be very interesting to see where Amazon decides to take its new purchase and if it’ll change the grocery store industry forever.

Until next time,

Jennifer Clark
Pro Trader Today