Amazon purchased Whole Foods for $13.7 Billion

[BradD]

Live literally next door to a Whole Foods- avoid it like the plague- think their cheapest dozen eggs is $8 something

I hope this Bloomberg article proves true (and given Amazon's current margin/pricing strategy, I have few doubts):

Amazon Said to Plan Cuts to Shed Whole Foods' Pricey Reputation

 

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[Bellini]

As for the deal, at what point does Amazon get an anti-trust looksie? They're getting too big, and too dominant.

AGREE.

Personally, I don't like this Whole Foods takeover. Amazon already took over Zappos and Imdb and many other companies.

But I doubt Amazon or Bezos will be getting in trouble anytime soon...considering they have a $600 MILLION dollar contract with the CIA.

Anyone can research it online, yet most of the general public has no idea. Here is just one article of many:
http://www.worldtribune.com/bezos-internet-cloud-deal-with-the-cia-worth-twice-what-he-paid-for-the-washington-post/

Not to mention, Bezos owns the Washington Compost.

Conveniently.

I make a point NOT to read The Washington Post because I have always known how biased it is, just like most of the media these days.

Bezos has his hand in a lot of things... Twitter, Google, Uber, Airbnb, Business Insider Magazine, Blue Origin Space travel, etc.

 

[unaided]

Lets talk about the price for investors. Whole foods had net income of 500 million based on a slim 3% profit margin. Thats $27.4 for $1 of income. Revenue/operating income has also dropped the last 3 years for Whole Foods.

Amazon is as good as anyone working on slim profit margins...I don't mind taking 1% of just about every industry either ...but with that price and even if you somehow double profit margin, how long until an investor gets their money back? No wonder Whole Foods stock climbed 29% in one day. Don't expect an Amazon dividend any time soon.



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[Leoto]

This is how it all went down:

 

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[InspireHD]

No wonder Whole Foods stock climbed 29% in one day.

You probably know this and maybe I'm misunderstanding what you're trying to say. Whole Foods climbed 29% because when Amazon offers $42 per share, the company is now worth $42 per share. It really doesn't have anything to do with profit margins or investors.

This also happened recently with Nutraceutical. They were trading around $28 per share and then agreed to a buyout by a private firm at $41.80 per share. The stock climbed nearly 50% in one day and now trades at over $41 per share.

Stuff like this happens all the time.

 

[AgainstAllOdds]

I love this thread. A lot of great insight from countless members.

What do you guys think this means for the small brands that sell products at Whole Foods? Will this integration also skyrocket the value of those individual companies?

Live literally next door to a Whole Foods- avoid it like the plague- think their cheapest dozen eggs is $8 something

I hope this Bloomberg article proves true (and given Amazon's current margin/pricing strategy, I have few doubts):

Amazon Said to Plan Cuts to Shed Whole Foods' Pricey Reputation

It might just be my opinion, but I think the high prices are part of Whole Foods's brand. I personally associate the high prices with the food being the highest quality. Lowering costs for a broader appeal might not increase profits.

 

[unaided]

You probably know this and maybe I'm misunderstanding what you're trying to say. Whole Foods climbed 29% because when Amazon offers $42 per share, the company is now worth $42 per share. It really doesn't have anything to do with profit margins or investors.

This also happened recently with Nutraceutical. They were trading around $28 per share and then agreed to a buyout by a private firm at $41.80 per share. The stock climbed nearly 50% in one day and now trades at over $41 per share.

Stuff like this happens all the time.

Thanks for pointing that out - my mistake on that part. My intent was to show that Amazon paid a lot for that revenue and it doesn't mean it was a bad deal for Amazon, but an investor won't reap benefits for a while in terms of return on THEIR equity.

There is opportunity cost of the 13.7 billion. Based on Whole Foods profit...even if you doubled their falling profits with improved logistics. It would take ~13.7 years to get your money back in earnings. Investors generally look at 5 years or less when parting with money (~15% annualized return). Otherwise it is easier just to trade paper stocks and boring 5% vehicles with that same money.

For example, at Whole Foods current profit level, it is like paying for new windows in your home that take 27.4 years to pay for themselves in energy cost reduction. Too long for most people to invest and your not guaranteed that a future buyer of your home is going to price in your investment.

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[InspireHD]

Thanks for pointing that out - my mistake on that part. My intent was to show that Amazon paid a lot for that revenue and it doesn't mean it was a bad deal for Amazon, but an investor won't reap benefits for a while in terms of return on THEIR equity.

There is opportunity cost of the 13.7 billion. Based on Whole Foods profit...even if you doubled their falling profits with improved logistics. It would take ~13.7 years to get your money back in earnings. Investors generally look at 5 years or less when parting with money (~15% annualized return). Otherwise it is easier just to trade paper stocks and boring 5% vehicles with that same money.

For example, at Whole Foods current profit level, it is like paying for new windows in your home that take 27.4 years to pay for themselves in energy cost reduction. Too long for most people to invest and your not guaranteed that a future buyer of your home is going to price in your investment.

Definitely. There is a very real risk that Amazon is overpaying. I would think that Bezos is paying up for something that Whole Foods does well. The most prudent thing to do in this situation, for investors of Whole Foods, is to sell their shares immediately. It's not often you're going to see a 30% return overnight. There is also a chance that the deal falls through. If you're still holding on waiting for the forced payout, you take the chance of the deal falling through and losing that 30%.

Joel Greenblatt has a great book on situations like this called, "You Can Be a Stock Market Genius." It's a cheesy name for a book, but it's a required read for anyone who wants to be an active investor.

 

[BradD]

I love this thread. A lot of great insight from countless members.

What do you guys think this means for the small brands that sell products at Whole Foods? Will this integration also skyrocket the value of those individual companies?



It might just be my opinion, but I think the high prices are part of Whole Foods's brand. I personally associate the high prices with the food being the highest quality. Lowering costs for a broader appeal might not increase profits.

Totally agree, certainly part of the "brand", I'm not their market- I don't know what you're doing to the eggs, but unless they also have some amount of gold inside I'm out lol

When I need to go in there to buy say a $15 prepared salad, I get the most pleasure watching people checkout in front of me. If you have even just a small basket (does anyone use carts there?)- you're in it for $100. Hard to walk out of a Walmart w/ a full cart costing much more.. Everything about their current model seems counter to Amazon's strategy, so will be interesting to watch how they play it

 

[DaveC]

Its hard to bet against Bezos, but this is a risk IMO. Grocery stores aren't really set up for warehousing, and they are low margin businesses. Maybe they think they can automate the checkout and stocking and get higher margins that way by cutting labor down? Its not like a Zappos where there is obvious economies of scale. They have a lot of cash still but I would have invested more in AWS and that sector personally.

 

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[BradD]

Another interesting/larger acquisition that they shuttered recently was Diapers.com - $545MM to 0

Founder moved on to found Jet, Walmart acq for $3.3BN ~ 1 yr after launch to compete w/ Amz- guy's on a hit streak..

 

[Leoto]

Its hard to bet against Bezos, but this is a risk IMO. Grocery stores aren't really set up for warehousing, and they are low margin businesses. Maybe they think they can automate the checkout and stocking and get higher margins that way by cutting labor down? Its not like a Zappos where there is obvious economies of scale. They have a lot of cash still but I would have invested more in AWS and that sector personally.

I'm just guessing here, but I think the intent might be to use the brick & mortar Whole Foods locations in the same way as Amazon Lockers, where people go to pick up groceries that were purchase online. Customers may be more willing to try online grocery shopping if they know that they can go their local Whole Foods and verify the quality of the groceries and refuse any items that don't meet their standards.

 

[KLaw]

Did Amazon change the Zappos culture after acquisition? How about their other acquisitions?

Sarcasm or genuine questions?

 

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[Alexlewter]

This deal puts AMZN cash at a level that they can't acquire any other company for sure.It takes time to swallow a big company like WFC.

 

[MidwestLandlord]

Its hard to bet against Bezos, but this is a risk IMO. Grocery stores aren't really set up for warehousing, and they are low margin businesses. Maybe they think they can automate the checkout and stocking and get higher margins that way by cutting labor down? Its not like a Zappos where there is obvious economies of scale. They have a lot of cash still but I would have invested more in AWS and that sector personally.

This just put Amazon's grocery offers in reach of 80% of Americans.

That's serious scale and distribution power.

If you could put your product in front of 80% of Americans, wouldn't you do it?

Plus, this is one of the big boy's we're talking about here. Amazon will be a major player in a large and important sector. What kind of control does that give Bezos? (Think lobbyists and government policies)

He'll have enough margin to pay the bills, Whole Foods does now. Higher margins will come if he needs them, just like he runs Amazon now.

He bought scale, control, barrier to entry, and need...not margins.

 

[G-Man]

What do you guys think this means for the small brands that sell products at Whole Foods? Will this integration also skyrocket the value of those individual companies?

For now, most likely not. How much a retail outlet helps your valuation is velocity on shelf plus how much profit you actually make. I don't see Amazon ownership fundamentally altering the rate at which consumers grab the product on the shelf. They might, however help you make more money on the back end with better logistics (closer shipping points, fewer billbacks, etc), but only time will tell. It's definitely a topic of conversation at the ole water cooler right now, though.

As a vendor all I know for sure is that Whole Foods is a godless pirate ship. Will Amazon make it more or less cutthroat? It could really go either way.

 

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[Gigi Rodgers]

Story is here Amazon is buying Whole Foods for $13.7 billion

Amazon has been trying to get into the grocery sector for a while with Amazon Fresh. Now they've definitely taken a huge leap ahead by acquiring Whole Foods.

Supposedly, Whole Foods will continue to operate business as usual under the and brand and same stores.

I think this is an interesting move for two reasons.

Amazon who has been dominating ecommerce and putting many B&M out of business, is now making a huge investment into B&M.

Amazon has wanted to get into grocery for a while. I think they'll start to use Whole Foods as part of their logistics chain to make that a reality. Was the purchase made for the brand or for its infrastructure?

Yeah, I posted this question somewhere on here.

It is very interesting news. Though a kid I know and I were talking about this, and we were talking about his parent's local grocery store and how they would survive integrating into this ecomm world.
I mean, malls are disappearing, Sears, a lot of brick and mortars in general.

The only pivot idea I could offer him was what if they did go online but hyperfocus on the local scene?
So get an app made for the grocery store where people can order their food.
Jack the stock boy is now in delivery.
They could even add pre-cooked food to the list (i.e., Harris Teeter Pizza - I miss it so much...) or Marion's Homecooked Gumbo.

What are your thoughts on this? How would a small grocer (yes they still do exist) compete and stay alive in this changing diaspora?

 

[MJ DeMarco]

I posted this on the INSIDE for an INE -- this video demonstrates the first wave of Amazon's killing power.... MALLS. It's coming for smaller B&M / commercial retail as well...

This is a local mall in my area (or I should say... WAS).

 

[MoneyDoc]

There's no better time to start a consumable brand on Amazon...

Imagine having your products on whole foods shelves in the click of a button... Amazon is expanding it's channels for it's sellers.

 

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[unaided]

I posted this on the INSIDE for an INE -- this video demonstrates the first wave of Amazon's killing power.... MALLS. It's coming for smaller B&M / commercial retail as well...

This is a local mall in my area (or I should say... WAS).

Beware REITs with potential heavy commercial retail exposure!

If they're not closing, the rents are declining just so it's a slower drowning for the owners.

 

[Scot]

There's no better time to start a consumable brand on Amazon...

Imagine having your products on whole foods shelves in the click of a button... Amazon is expanding it's channels for it's sellers.

Agreed. I'm hoping to launch my CPG brand on Amazon next month. This could potentially cut out half the process of getting into retail.

The hardest part of retail is getting meetings with buyers and getting onto the shelf. With Amazon making serious gains in the grocery space, we could see an explosion of new brands or at the very least, easier entry into the market.

 

[G-Man]

Agreed. I'm hoping to launch my CPG brand on Amazon next month. This could potentially cut out half the process of getting into retail.

I wouldn't expect it to have any effect on that for 18-24 mos.... but I could be wrong.

The hardest part of retail is getting meetings with buyers and getting onto the shelf. With Amazon making serious gains in the grocery space, we could see an explosion of new brands or at the very least, easier entry into the market.

For products like yours that are super niched down, this is probably true. For more run-of-the-mill CPG products, I would expect this to be a harbinger of bad things in the next 10 years. I would fully expect Amazon to get into private label in a huge way. They've already started.

 

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[Scot]

I wouldn't expect it to have any effect on that for 18-24 mos.... but I could be wrong.



For products like yours that are super niched down, this is probably true. For more run-of-the-mill CPG products, I would expect this to be a harbinger of bad things in the next 10 years. I would fully expect Amazon to get into private label in a huge way. They've already started.

So you're saying I need to exit in 8 years. Got it. Haha

 

[Daniel Newton]

Amazon sees Whole Foods as a customer, using the over 450 markets as distribution centers and attracting the affluent Whole Foods shoppers to Prime.

 

[Shades]

Another interesting/larger acquisition that they shuttered recently was Diapers.com - $545MM to 0

Founder moved on to found Jet, Walmart acq for $3.3BN ~ 1 yr after launch to compete w/ Amz- guy's on a hit streak..

Walmart cant hope to compete in the tech space. Jet.com is the same mess it was before acquisition. Give the Jet founder credit tho, his goal was acquisition from day 1 and he made it happen really quickly.

 

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[Shades]

Amazon will cover most of the country with grocery delivery within 2-3 years. Thats the game here. Nobody has been able to accomplish it because its a logistics nightmare. This goes a long way into making that a reality. At that point its game over for a lot of smaller grocery stores. Amazon will dominate this industry too. Great IMO, it needs this disruption. Prices will drop and service will improve. They will throw their AI tech at it too, grocery shopping via Amazon will be the best way to do it....while being the cheapest and most convenient.

 

[MJ DeMarco]

As for the deal, at what point does Amazon get an anti-trust looksie?

Amazon's monopoly is Armageddon for retail industry, retail analyst says

 

[Owner2Millions]

Amazon will cover most of the country with grocery delivery within 2-3 years. Thats the game here. Nobody has been able to accomplish it because its a logistics nightmare. This goes a long way into making that a reality. At that point its game over for a lot of smaller grocery stores. Amazon will dominate this industry too. Great IMO, it needs this disruption. Prices will drop and service will improve. They will throw their AI tech at it too, grocery shopping via Amazon will be the best way to do it....while being the cheapest and most convenient.

I'm worried about the quality of the food....it's never good when a big corp takes over something so valuable like food.


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[maverick]

My opinion is...neither.

It's a platform and footprint play. From a platform standpoint, it's an offline equivalent to AWS. Not only is the platform financially self-sustaining (Amazon's B&M grocery business is the biggest consumer of the platform), but provides a mechanism and footprint to begin to siphon off a piece of others' offline transaction revenue as well.

From a footprint standpoint, it provides immediate economies of scale -- the single biggest competitive advantage the online business leverages to be successful.

The brand is inconsequential and the infrastructure will be short-lived.

Good point. I also other developments:
Amazon's advertising business is growing very rapidly:
Amazon’s Advertising Business is Growing Like Weed

Amazon are looking to tie together consumer behavior in online and offline channels so that they can effectively segment customers.

Companies with strong offline distribution only have a small fraction of sales coming through online. Amazon will be very interested in showing these companies that online advertising drives offline sales:
Over 80% of online ad effect is on offline sales

The biggest FMCG companies are all cutting their advertising costs (with focus on cutting agency costs). This is pushing them more and more towards direct-to-consumer models.
P&G to cut $2 billion in ad spend over five years

Amazon are trying to position themselves as the middle man, effectively turning "direct-to-consumer" into "direct-to-consumer-via-amazon".
Why Amazon Is Trying To Convince CPG Giants To Go Direct-To-Consumer

By offering offline distribution, they're able to own the entire value chain.

 

[unaided]

I'm worried about the quality of the food....it's never good when a big corp takes over something so valuable like food.


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I disagree, it is distribution and logistics of the food made by others, dictated by the market interest....at lower cost thanks to imoroved distribution and logistics.

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