Whole Foods Global SalesBi IntelligenceAmazon announced this morning that it will acquire high-end grocer Whole Foods for $13.7 billion in a deal set to close later this year. The acquisition gives Amazon two crucial assets — a significant foothold in the $600 billion US grocery market, and a strong brick-and-mortar presence with Whole Foods' 465 store locations in North America and the UK. Amazon could use these advantages to both disrupt the grocery market and upgrade its e-commerce delivery network.

  • Amazon has signaled it wants to be a major player in the grocery market — but it won't achieve that position without brick-and-mortar. It has been adding talent to its AmazonFresh online grocery delivery service, as well as providing new incentives and collection options to encourage more customers to join the service. However, online grocery only makes about 4% of the total US grocery market, according to Nielsen. To build out a physical presence, Amazon has been experimenting with its own grocery store formats — media reports indicate the company has ambitions to build a network of 2,000 grocery store locations in the US, an arduous and cumbersome feat. Acquiring Whole Foods is a faster and easier path for Amazon to develop a nationwide grocery store footprint than building its own stores — this deal would bring it about a quarter of the way to reaching the 2,000 mark. 
  • Whole Foods' stores will give Amazon an invaluable physical platform to both grow its grocery delivery business and reinvent the grocery shopping experience. AmazonFresh is one of many services competing in the nascent but growing online grocery delivery market. Amazon will be able to use Whole Foods’ stores as online grocery fulfillment centers. Customers could either pick up their orders in-store or have their online grocery orders delivered from a nearby location, resulting in lower delivery times and costs than shipping them from a more distant warehouse. This could allow Amazon to reduce AmazonFresh’s $14.99 monthly membership fee, making the service more affordable and appealing to more [...]