Amazon deal for Whole Foods targets Walmart stores

On Friday, Amazon.com bought a grocery chain Whole Foods Market Inc for solid amount of money – $14 billion. The e-commerce giant announced its will to beat Walmart in the brick-and-mortar world which purchased Jet.com for $3 billion last year.

According to Reuters, Amazon’s purchase of Whole Foods may bring a fall to the $700 billion U.S. grocery sector. This traditional retailing area stands on the precipice of a ferocious price war. German cheap-price retailers Aldi and Lidl are competing with Walmart that controls 22 per cent of the U.S. grocery market, with each undercutting whatever price the others offer.

The stakes are the highest for Walmart. They have annual revenues exceeding $486 billion. So, Amazon decided to make this competition more serious and bought the grocery store chain Whole Foods with more than 460 stores. Of course it is nothing compared to 4,700 stores that are offering Walmart, but a good start.

Amazon is expected to lower Whole Foods’ high prices and enable to pursue Walmart’s customers. Walmart is heading in the opposite direction. They just have started to offer more expensive brands such as Moosejaw and on Friday, menswear e-tailer Bonobos for the higher-income shoppers.

It has also gotten serious about acquiring more brands born on the internet. Walmart and Mr. Lore had already spent $166 million buying start-ups like ModCloth and Shoebuy.com.

When the company bought Jet.com last year for $3.3 billion, it installed the Jet founder, Marc Lore, to lead its e-commerce efforts in the United States and gave him a mandate to expand quickly.

Less than a year later, Mr. Lore and his team has already begun transforming the way Walmart sells things online — and now have bought their most prominent retail brand to date. The deal has been widely rumored since April. When Recode first reported news of the sales talks, some observers speculated that Walmart’s ownership would damage the Bonobos brand.

However, there are no plans to offer Bonobos’s $98 chinos or $128 dress shirts in Walmart’s 5,000-plus stores. Instead, Walmart is hoping to learn from Bonobos. Its co-founder and chief executive, Andy Dunn, will oversee Walmart’s digital brands, which also include the independent women’s brand ModCloth.

“I saw Walmart acquire Jet and then ModCloth, and, I thought, they get the future of e-commerce is brands,” Mr. Dunn said in a telephone interview.

In preparation for the grocery price war with Amazon, Walmart has cut grocery prices in recent months. They also improved fresh food and meat offerings, modernized shelving and lighting in its grocery aisles, and expanded its online grocery pickup service.

Marc Lore, the Jet.com founder who now runs Walmart’s e-commerce business after selling a startup to Amazon, told Reuters in an interview that Amazon’s move does not change Walmart’s game plan. “We’re playing offense,” he said.

Walmart is testing same-day fresh and frozen home delivery from 10 of its stores. It also is offering curbside pickup of online grocery purchases at 700 locations. By the end of this year they are planning to expand this service.

“We see an opportunity to do a lot more of that,” Lore said.

It is clear that for Amazon will be difficult to use Whole Foods to get Walmart’s customers because these stores are too different from each other. But Michelle Grant, head of retailing at market research firm Euromonitor, said Amazon could use an obscure part of the Whole Foods portfolio – Whole Foods 365 – to lure Walmart customers.

Whole Foods Market, Inc. (Whole Foods) is one of world’s leading organic foods supermarkets, and the first national Certified Organic grocery in the U.S.. The company provides sweets, meat and poultry, seafood, beer, wine, cheese, prepared foods and drinks. Whole Foods offers private label products, comprised of over 2,200 stock keeping units branded under the 365 Everyday Value or 365 Organic names.

Brittain Ladd, a former senior manager at Amazon who worked on its brick-and-mortar strategy, said Amazon has bought Whole Foods “to test concepts for the grocery store of the future.” Ladd also revealed that Amazon will seek to eliminate checkout lines by using technology that automatically scans goods after customers add them to their shopping carts. It will select merchandise based on Amazon’s vaunted customer data, and potentially expects the use of technology to change prices during the course of a day.

Ladd said that Whole Foods also likely will offer in-car pickup of online purchases, and home delivery from stores, pharmacies and showcase Amazon devices inside the stores.

“Amazon will reduce prices and change the assortment of products carried in Whole Foods stores to attract a larger customer base,” said Ladd. “Kroger and Walmart will be impacted as their customers will defect to Amazon.”

Amazon declined comment on competition with Walmart, but spokesman Drew Herdener said in a statement the company has no plans to cut jobs or use technology in development at its Seattle Amazon Go store to automate jobs of cashiers.

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