Amazon's (AMZN) Whole Foods (WFM) Deal Changes the Game

Whole Foods (Shutterstock photo)Whole Foods (Shutterstock photo)

Amazon’s (AMZN) $13.7 billion bet on organic and natural foods retailer Whole Foods (WFM) sent shockwaves throughout the market Friday, causing a massive selloff in retail stocks like Kroger (KR), which got punished to the tune of more than 9%.

Shares of Target (TGT) and Wal-Mart Stores (WMT) also felt the pressure, falling 5.14% and 4.6%, respectively. As for Whole Foods’ closest peers like Sprouts Farmers Market (SFM), it was one of the largest retailers hit, plunging as much as 14% in Friday’s session, before paring its losses to just 6.3%. As with the carnage Amazon has created in retailers like Sears (SHLD), Macy’s (M) and JC Penny (JCP), the market is bracing for a reset in the grocery aisles.

With Whole Foods now in his pantry, Amazon founder and CEO Jeff Bezos has just picked off an asset to help the online juggernaut take on the $800 billion grocery business in the United States. The deal for the upscale grocer is a game changer, especially when combined with Amazon’s grocery delivery program, AmazonFresh and the company’s brick-and-mortar experiment called Amazon Go.

It’s not yet clear what changes (if any) Amazon plans to make with Whole Foods. But assuming Whole Foods will be anything like Amazon Go, which, thanks to Amazon’s investments in machine-learning technology, will allow shoppers to use a digital shopping cart and then can walk out of the store without waiting in a checkout line, Whole Foods could immediately usher in the future of grocery stores.

Bezos has built his company and wealth by embracing risk. Like Apple (AAPL) founder Steve Jobs, Bezos has a knack for ignoring what Wall Street prioritizes (such as profits) to focus more on what customers want next before they realize they want it.

“If you’re going to take bold bets, they’re going to be experiments,” Bezos was quoted as saying at a 2014 conference. “And if they’re experiments, you don’t know ahead of time if they’re going to work. Experiments are by their very nature prone to failure. But a few big successes compensate for dozens and dozens of things that didn’t work.”

One such example is Amazon Web Services (AWS), the premier cloud infrastructure platform which leads competing offerings from Microsoft (MSFT) and Google (GOOGL). AWS, which started as an experiment, is now Amazon’s main profit generator, allowing it to operate its razor-blade retail segment. In the case with Whole Foods, however, there’s arguably no risk with the acquisition.

The fact that AMZN stock rose 3.6% Friday, netting some $13 billion in market cap, essentially funded the 27% premium Amazon shelled out for Whole Foods. Not to mention, the Whole Foods demographic of affluent shoppers and prime store location fits perfectly with Amazon’s Prime subscription model when factoring Amazon’s own base of affluent shoppers.

All told, after having dominated book stores, big-box electronics outlets, apparel, and a host of other areas, the grocery aisle is clearly Amazon’s next target. And as long as Bezos is steering this ship, AMZN stock — despite trading at near all-time highs — could be the best value among anything Amazon sells.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

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