How much did Whole Foods cost Amazon? (Ans: Nothing!)

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Amazon Introduces Low-Cost Grocery Delivery Subscription in US

Amazon paid some $13.4bn for the US supermarket chain Whole Foods who have 9 UK branches and a few hundred in the US and Canada. The thing is it didn’t really cost them anything.

Looking at Amazon’s share price, it jumped about 3% as soon as the acquisition was announced on the 16th of June with their market cap increasing by $14.37 billion. Investors liked the deal so much that Amazon came out worth more than before they spent the money!

At the same time their chief US rival Walmart saw their share price drop by almost 5% ending up at $74.84 over this weekend. Investors love Amazon so much that they can swallow an entire food chain and not only end up worth more by the end of the day but also see their competitors value diminish by a similar percentage.

It’s interesting to reflect on how online activity can seriously impact offline retail. Amazon haven’t had time to do anything with Whole Foods yet and they are relatively small, compare Tesco with 6,809 stores around the world or Sainsbury’s with 1,400 UK stores and Amazon swallowing up a competitor with less than 500 hundred stores seems insignificant.

The reason the acquisition moved Amazon’s share price has less to do with the value of the business than it does to Amazon’s intent. Whole Foods isn’t a major player in the US supermarket arena, they’re the trendy, organic, expensive place to shop for more affluent people who care about what they eat rather then the cash strapped family on a budget. What it does for Amazon however is to provide a real estate that they can grow, a customer base to tap into to market healthy organic options online to people who they already know care about food and can afford to pay that little bit extra.

The biggest immediate impact is that Amazon now have a set of shops with a product set that can be picked, packed, collected by Amazon Logistics drivers and delivered in the store locality the same day à la Prime Now style. Amazon don’t care about the money they spend to make something work (especially when their share value sky-rockets on the back of a deal). What Amazon want is to inveigle themselves into more peoples lives and once you’re buying your organic Whole Foods products, there’s every chance you’ll take out a Prime membership and start spending even more on the marketplace.

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