Shares of Whole Foods soar, but other grocery sellers get crushed.
Amazon, which is getting blamed profusely for the meltdown of brick-and-mortar stores and malls across the US, and which has been dabbling with its own initiatives into brick-and-mortar operations – including bookstores, after nearly wiping bookstores off the face of the US – said it would buy brick-and-mortar Whole Foods Market for $13.7 billion.
Amazon will get Whole Foods’s $15.7 billion in annual sales and more importantly, its brand, semi-loyal customers, and about 450 brick-and-mortar stores across 42 states. Whole Food shares jumped 27%.
But in early trading, the shares of the largest brick-and-mortar grocery sellers in the US are getting crushed:
- Wal-Mart Stores -6.5%
- Kroger, largest supermarket chain in the US, -14%
- Costco -7%
- Target -10%
Amazon already sells groceries online via AmazonFresh, and a few months ago announced it would create a grocery store pickup service, another foray into brick-and-mortar.
Selling groceries online has been tough in the US, though everyone has been trying, from innumerable startups to Safeway and Google Express (in cooperation with Costco et al.). Consumers are used to buying at the store by running through the aisles with their carts and choosing what they see or what’s on their list, or both, and they want to touch and check their produce before buying it, and they don’t want the dented apples or squished grapes or wilted lettuce. And they need it now on the way home from work so they can fix dinner.
With this acquisition, Amazon’s efforts to muscle its way into the grocery business and even more into the every-day lives of Americans have thus taken a quantum leap forward.
But what industry is Amazon muscling into? Over the past six years, sales at grocery stores are up a total of 14%, not adjusted for inflation, according to the retail trade report by the Commerce Department. Over the same period, the Consumer Price Index for food rose 14%, according to the Bureau of Labor Statistics. Hence, on an inflation-adjusted basis, “real” sales have been flat for six years.
Amazon has a huge luxury: Its shares trade at a sky-high PE ratio of nearly 200, as its earnings are paper-thin, and the market doesn’t care. The shares of brick-and-mortar retailers get destroyed with profit margins this thin. Amazon can borrow cheaply on the strength of its shares and can use them as collateral. It can also issue an unlimited number of new shares to raise cash if it needs to, or to buy other companies, and in this manner use the shares as an over-inflated currency. It can raise money this way to pay back its debts, and creditors know this. It’s one of the many distortions of what has become a crazy stock market.
“Whole Foods Market will continue to operate stores under the Whole Foods Market brand and source from trusted vendors and partners around the world,” Amazon said in its press release. “John Mackey will remain as CEO of Whole Foods Market and Whole Foods Market’s headquarters will stay in Austin, Texas.”
The deal puts Amazon bigly into the brick-and-mortar grocery space, after German mega-discounters Aldi and Lidl announced huge expansion projects in the US, and after numerous smaller supermarket chains have sought refuge in bankruptcy court. Big player, Albertson’s, which also owns Safeway, scuttled its IPO in 2015 due to the brick-and-mortar meltdown. It now appears that the PE firms and other investors that own it are stuck with the money-losing over-indebted enterprise that is now also dogged by sharply deteriorating same-store sales.
Amazon isn’t going to make it easier for them.
Even Whole Foods, once the shining star, has fallen on hard times. Its products with an aura of “natural” and “organic” have become common at Costco, Safeway, Kroger, Albertson’s, and all the others – at lower prices. Its shares as of yesterday have lost half their value from their peak in late 2013. Same-store-sales have dropped consistently since late 2015. For the past two years, revenues have been essentially flat and profits have been shrinking.
Whole Foods has been hounded by its second largest shareholder, activist hedge fund Jana Partners, and by money manager Neuberger Berman to put itself up for sale in order to spike the beaten-down shares. This has now happened. Amazon agreed to fork over $42 a share, a 27% premium to the closing price yesterday. It expects the deal to close later this year.
But nothing, not even Amazon, can boost grocery sales in the US. Most Americans are already eating enough, or more than enough. And price competition, with the expansion of the German discounters into the US, will heat up further.
Amazon’s acquisition and Aldi’s $5 billion bet in the US comes at a brutal time. Read… Albertson’s Reveals Supermarket Meltdown as Global Deep-Discounters Promise Price War in Stagnating US Market
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Oh man! I tried to break the news first as comment on your Albertson’s report/comments and my comment is awaiting moderation? :-(
It seems like a play to take market-share from other grocers by reducing wait times and enhancing the experience. The new technology should be a huge draw if it works. Can you imagine what Costco, Walmart, Target, and Home Depot would pay for this technology? I wonder how much of it is patented and by whom.
I find the shopping experience at Whole Foods very pleasant. Not sure how Amazon can improve on it.
What I’ve been experiencing over the last five years has been less than positive what with Whole Foods dropping most of the brands I prefer in the attempt to ‘force’ their ‘ House Brand ‘ down my throat . Also customer service has been on the decline .. their prepared foods quality has been waning .. and worse yet : the number of blatantly sugar based products pretending to be healthy or organic has been rapidly increasing .
As for Amazon making improvements ? Name one thing or business other than their own bottom line that Amazon has ever … improved . I dare you .. just one !
Since I consider Amazon basically a catalogue business online, they have improved the catalogue business, which was a slow inefficient business, by improving the overall experience of non brick and mortar shopping.
TJ: Forcing a house brand is the norm. Think Archer Farms for Target and “O” brand for Safeway. Look behind the scenes…Treehouse foods is specializing in that sphere. There are not that many manufacturing plants out there.
Unless they make it in house, you are buying from the same manufacturing plants. Slightly different recipe, just different label.
I take the USDA recall list and it becomes apparent how small the suppliers are. One recall sends it down the chain to a multitude of grocery store and restaurants. It is crazy to see.
Whole Foods has “gluten-free” marked on a bag of sugar. Yeah, if you’re looking for “gluten-free” sugar at a 30% markup, that’s the place. :-)
I’m not sure which business specifically, but I buy nearly every non-grocery item from Amazon, so they may as well go for the jugular.
I’m assuming they’ll eventually use Whole Foods as an implementation for their Amazon Go groceries.
“Name one thing or business other than their own bottom line that Amazon has ever … improved.”
Amazon has revolutionized shopping. That’s all.
You may not think that’s an improvement, but for someone like me who hates shopping, it’s a huge improvement. I now can get in five minutes what used to take hours (including the time trying to get there). And then when you got there, you might not find what you needed, and you’d have to go somewhere else and start all over again. I’m so glad I don’t ever have to expose myself again to that sort of waste of time and psychological torture.
Now there are a lot of competent online competitors to Amazon. You don’t even have to buy from Amazon to benefit from the Amazon effect. Most recently for us, this includes a washer, big furniture, undershirts, Levi’s jeans, a camera, an electric kettle, and all kinds of clothes that my wife is buying. Amazon only got a small part of that business.
I have got to imagine this is part of their vision to push online shopping for food. Food delivery can be great but having a real local store may actually help facilitate delivery to a local area. They must envision buying whole foods as giving them a leg up into this endeavor. I would be incredibly surprised if this somehow didn’t play into their strength of providing the best online shopping and delivery experience. I can think of a lot of advantages to having a well known slew of grocery shops where they could start to experiment with new tech and services without the need to setup a store from scratch like I believe they were doing in the Bay Area.
Wolf – All I can say in response to your 1:32pm reply is .. either support your local establishments putting up with the minor inconveniences of shopping now .. or chose the route of perceived convenience paying the price big time ( bigly ? ) later .. but either way you’re gonna pay .
The former like taking a wall down brick by brick . The later being the entire brick wall falling on your head
In as far as Amazon revolutionizing shopping ? Really ? Not hardly . All they did was to (mildly ) reapply the standards set over a century ago * by the mail order catalogues . And therein lies the problem Wolf . If thats what passes as ‘ revolutionizing ‘ in this day and age no wonder we’re in such abject dire straights across the board . Tis time methinks to spend a little time with the OED not to mention a bit of history to start placing the predicament we’re in back in perspective .. rather than resorting to revisionist definitions of what is nothing more than Technology for Technology’s sake with no real benefit and multiple consequences
* Sound a tad familiar ? Thats todays EV’s in a nutshell . Same old problems ever so slightly slightly advanced and improved yet overcomplicated by the technology providing those minor gains at best for a very large price .. over a 110 years later
( And thus Wolf … my argument for interdisciplinary studies at the undergraduate and graduate levels versus the current excessively one dimensional studies and over specialization )
TJ Martin,
Yeah, right, minor changes that killed American department stores and other forms of brick and mortar retail as we knew it. Mail-order sales barely made a dent into retail sales, especially after Sears abandoned it long ago. It was a non-entity by the time the Internet became usable for the public.
Maybe you’re not buying your stuff online. Maybe you’re still fighting traffic in your fossil-fuel burner to spend hours shopping for undershirts, appliances, and couches. I’m OK with that, no problem, whatever tickles your funny bone. But there’s a new world out there, and it’s different.
Denying that the internet revolutionized the way we do things is just silly. You might still be doing everything the way you did many decades ago. But the rest of the world has moved on.
TJ Martin
Well, for starters, the book business. You may not think so, but I (and millions of others) do. Kindle is a great way to read.
If you’ve ever compared Amazon office supply prices to Staples, you might be inclined to say “office supply business”.
I also bought a candelabra from Amazon that was delivered faster and 30% cheaper than a local retailer could manage – so home lighting.
I get specialty tools (drill bit to allow me to use my power drill, not fingers, to remove hurricane shutters) – so tools.
When I was caring for my 92+ year old father, we got the exact right size Depends for a great price – so home health care.
When making a buying decision to use Amazon, my first thoughts (now almost subconscious) are convenience, price, speed AND TRUST. This is what is killing brick & mortar retailing.
Like I said, you may not agree, but who cares? Millions of others do, and that’s what makes a free market.
@T.J. Martin. I assume you are male.
Here’s a simple challenge. Go to any local brick and mortar store and find me a cotton button-up women’s shirt in size 4 (small) that is 100% cotton. Not polyester, not rayon. Not modal. For under $50.
Non modal?
Whole Foods is known to most middle class folks as “Whole Paycheck”.
Walmart has wasted half its earnings for over 10 years to have a associate ready to load purchases into the truck of a individual to lazy to shop?
Not a lot. It’s been available in Europe for decades. Due to lack of broadband then, Tesco, used to send out CD-Roms catalouge that would send the orders to their server via the web.
This seems like a dumb decision on their part. What’s your prediction? I see failure. I hope it as well.
Lots of people want to be billionaires, but few have any vision or the guts to take risk…so the number of new billionaires is, shall we say, somewhat constrained.
I have no idea how Bezos will improve grocery shopping (he does not appear to have done much to improved the newspaper business), but to coin a phrase “grocery shopping ain’t rocket science”.
I’m quite interested and willing to wait a reasonable time to see what he has in mind…
He’ll fire all the workers and make the place self serve. It will be pushed as part of the green agenda- fewer workers means less waste and pollution!
Whole foods seems to have some of the most abused and surly workers of any grocery I know. Many appear to be at the ‘snapping point’. Very similar to Home Depot level service.
There are few constant faces and it is a merry-go round of young and old part timers.
Has anyone out there woked at Whole Foods?
Undercut prices is how amazon got where it is. So probably that.
You might be right Bee. Every human institution succumbs to hubris, sooner or later.
Bezos’ acquisition is over ten times larger than his dozen or so others – I foresee debilitating management resources required.
Bezos has been on roll (deservedly, thus far, IMO) but now?
I’m betting on Kroger – stock price down 14%, for now.
We live in an age where Companies that don’t make a profit, or very thin profit, can put profitable Companies out of business. It is a strange new world.
Keith
You have missed the entire concept. Companies making big fat profits have ALWAYS been targets for competition. That is only a “strange new world” if you have not been out in the world very long.
What you consider to be a “thin margin” may be quite acceptable to somebody else. Nobody cares what you consider to be a reasonable profit, that’s determined by the competing business owner.
@Keith – Not really.
I remember reading a comment from Lester Thurow a long time ago… Something along the lines of – When an Empire Builder goes head to head with a Profit Maximiser, the Empire Builder wins every time.
Amazon is an Empire Builder… Every other company in the ol’ US of A is a Profit Maximiser… I’m betting on Amazon to “win”.
Though for moral reasons I *refuse* to shop Amazon…
Empire Builder vs. Profit Maximizer.
With Wall Street and the Central Banks backing them, an Empire Builder can make a Profit Maximizer bleed longer than fresh blood can be found.
It has nothing to do with textbook competition and everything to do with Market share in the short run, and pricing power in the long run- after the Profit Maximizers have been squeezed out.
It’s called Economies of Scale.
Whole Foods CEO Mackey totally dissed activist investor Jana Partners ( forcing them to give up their 9% stake) as he was working with Amazon. He lied about “I will never sell”
Supposedly he coined the term “conscious capitalism” so it will appeal to the Millennials.
http://www.fooddive.com/news/grocery–breaking-amazon-to-buy-whole-foods-in-137b-deal/445202/
Another interesting tidbit is Sprouts is partnering with Amazon Prime: http://www.fooddive.com/news/grocery–sprouts-partners-with-amazon-prime-now-for-denver-service/445170/
Speaking of “conscious capitalism”….Tom’s shoes looks like it is heading for a rough ride since Bain bought 50% stake.
He not only coined the term ‘ conscious capitalism ‘ he wrote the book along with the website ;
https://www.consciouscapitalism.org/people/john-mackey
Though to be honest I’ve been pretty damn skeptical when it comes to Mackey’s definition of conscious capitalism in light of how much edible food every WF store throws away every day rather than donating it to shelters charities etc . And with Amazon now at the helm I’m guessing things will only get worse
As for your additional bad news about Sprouts . Jeeze .. another one bites the dust … guess I’ll have to start going my own
TJ, as far as donating food: I have volunteered for several food pantries ….they do not want food they have to cook, and they do not like anything other than white bread, cereal, poptarts, chips, et cetera. Once those expired items run out they complain. Most of us workers took home day day old artisan bread and other items because the people we were trying to serve did not want them.
TheDona – The majority of the foods WF throws away are prepared [ boxed – frozen or canned ] that have barely exceeded the expiration date and are still healthy and edible well within the edible donations guidelines ole Bill ( Clinton ) established and still remain in place . I can’t remember the title of it but there was a documentary both in the theaters as well as PFV that exposed WF’s wretched waste . But the reality is most food pantries , food kitchens , meals on wheels , Salvation Army , Church based charities etc across the nation will gladly accept fresh foods .
TheDona – The majority of the foods WF throws away are prepared [ boxed – frozen or canned ] that have barely exceeded the expiration date and are still healthy and edible well within the edible donations guidelines established in the late 90’s and still remains in place . I can’t remember the title of it but there was a documentary both in the theaters as well as PFV a year or two ago that exposed WF’s wretched waste . And … the reality is most ( after careful research the majority of ) food pantries , food kitchens , meals on wheels , Salvation Army , Church based charities etc across the nation will gladly accept fresh foods especially fruits and vegetables
Unbelieveable how entitled they are I’m sorry but it’s very hard to feel empathy for people exhibiting that sort of behavior I would have thrown them out
They probably don’t have any place to cook, that’s why they want prepared.
I’m not familiar with store or slogan but I would have made it ‘conscientious capitalism’
Yes, but that would be an oxymoron.
I like it Duke
They are not using their stock as currency. It’s an all cash deal funded by debt. It will be interesting to see the rate at which they are able to finance this deal. Everyone is assuming they will be delivering the groceries. They introduced the Amazon Now supermarket 6 months ago without cashiers. I think that is the direction they are headed.
And the collateral for the debt is …..their stock
Nick
If Amazon funds this purchase with debt, somehow, I doubt they’ll be asked to post collateral (AMZN also has >$26B in cash on their balance sheet).
OK- I guess that means its some kind of tax thing. Like Apple borrowing to pay its special div.
Nick
You might be missing some of the subtly involved in the way AMZN structured this transaction. For example:
– Bezos probably considers AMZN stock undervalued, so why use it to pay for WFM? Cash is better (i.e. cheaper).
– Cash allows 100% of the value from the transaction to accrue to AMZN; paying in AMZN stock would “share” some of any increased value with ex-WFM shareholders, who would then also be AMZN shareholders.
– Cash also means AMZN shareholders assume 100% of the risk if the business venture goes bad (current WFM shareholders get cash and have no on-going market exposure)
– WFM shareholders will pay taxes (income or capital gain) on cash they receive in the buyout.
All in all, Bezos is making a strong statement about perceived low risk & capturing 100% of the increased value for AMZN shareholders (of which Bezos owns 17%). What ever Bezos has in mind for WFM, he appears to strongly believe in it.
WFM foods shareholders look simply relieved to finally get rid of their stock.
But, their debt is increasingly problematic:
http://fortune.com/2012/12/18/just-how-risky-is-amazons-debt/
Interesting, Chip.
I also have to add that the source of the 17 billion is not Amazon’s business. It is from the sale of stock.
If Amazon had it rely on its business model for cash, that is. to grow organically it wouldn’t have 1.7 billion on hand or maybe not even 170 million.
Apple the another FANG, earns its money by selling stuff, not just stock. By comparison with Amazon, Apple is grossly undervalued. ( I don’t think it is)
There is a Tesla- like quality about Amazon. OK it is profitable unlike Tesla, but a PE of 180? (I’m shooting from the hip after a few but I think that’s what it is)
If the tide turns on this stock market it’ll be Amazon on the beach before the actual grocers.
PS: the sell off in the other guys ( Wally etc.) looks overdone.
While I was visiting friends at Duke in Durham NC I shopped at Whole Foods for the first time Was totally unimpressed and all I saw was overpriced food and lots of spoiled Duke students wasting their money Preferred Kroegers They had the BEST service and loved Trader Joe’s for wine and cheese
timely reporting. from what i read amazon is funding the purchase with debt. score one for Jana Partners. I think you mentioned in a previous article amazon was looking for a “brick and mortar’ outlet for their wares. ZIRP funding at its finest. They can now offer Amazon “prime” steaks.
If I were Jana Partners, I’d MUCH rather have $13B of tax-free AMZN stock than $13B of taxable cash.
How much do you think tax-free (until you sell it) AMZN will appreciate over the next 12-18 months?
Chip
I sense that we’re about to head down in value. The study of parabolic curves is extremely interesting. FAANGs are all parabolic, as is the market en masse. I sense most equities are about to go into reverse..
The hype around Amazon reminds me of AOL.
It was going to transform everything too.
But using its overvalued stock as currency it did something very smart- it bought an actual real profitable business, Time Warner.
This turned out to be a very good deal, a life saver for AOL
shareholders and not so much for Time Warner shareholders.
Not long afterwards AOL Time Warner wrote the AOL biz down
to zero, and then removed the name.
So if you are an Amazon shareholder, be relieved that it is buying businesses NOT in the internet bubble 2.0
BTW: I don’t dispute for a second that Amazon is good at what is does and seems to have growth potential ( I think like Wally it will have to develop house brands, it can’t keep just delivering stuff for these tiny profits)
So up its PE ratio to 20. or be generous 25 and work backwards to where the share price should be.
If AMZN/WFC will price everything they sell at prices that are even lower than WMT superstore prices without reducing quality I would buy there because WFC would no longer be the overpriced store that I avoid.
While I expect prices will drop some at WF, due to the tech efficiencies Amazon can bring to the chain, I doubt too many WMT shoppers will switch. They are two different demographics. WF goes out of their way to be in the upscale communities, usually far from the nearest WMT.
There’s a WF practically across the street from what might be the nicest, cleanest Walmart in existence in my town.
Icahn’s buying an airline?
Whole Foods is the perfect grocery partner for Amazon. It caters to an affluent customer, is located in upscale places, and carries all types of in fashion food items. Amazon needed a system of brick and mortar stores to sell groceries because most shoppers can’t wait for days and the shipping costs are too high anyway. Now they need to buy Uber for delivery services.
” It caters to an affluent customer, is located in upscale places ”
Not in the Denver metro area they don’t . Fact is almost every WH store her is either in Box Store Nirvana , lower to middle class neighborhood or smack dab in the middle of retail hell .
As far as affluent is concerned . Go to any of the WH on my side of town and you’ll see an entire range of people from moderately poor to the affluent and all places in between shopping there
Everywhere I have lived they have always been in the better part of town, even here in flyover country, they are in the nicest mall. I doubt the poor shop there, they don’t call it whole paycheck for nothing. And just because they look like they’re homeless doesn’t mean they are, some people think that’s cool.
The one in Durham NC that I mentioned is practically a part of the Duke U campus in an upscale commercial area just adjacent I would say the VAST majority of the customers were students professors and other employees associated with the University and the small businesses that profit from it The other side of the tracks( literally) is another story altogether
Old clothes ARE cool! Holes are free passive air conditioning …
Have you ever been to a grocery store and happened to care what goes on in the backroom?
Amazon is wasting money on the lowest margin/highest personnel turnover business there is out here?
Throwing good money after bad !
PEAKED!
This was my thought as well, Tom. May this be their downfall!
Boy, if a person needs a “premium” grocery store, they might be in need of some examining. It’s just more moronic marketing for the masses.
Amazon sucks. After having had many items arrive broken/damaged/ripped open, I gave my business to Jet.com (now owned by Walmart [whom I boycotted for 2 years in the past]). Jet is several times faster and higher quality than liberal utopian Amazon/creepy CEO Bezos.
Uh, do you really want to call someone who runs a company with Amazon’s (warehouse/logistics) pay and working conditions a “liberal utopian”?
The man has become a billionaire operating, or contracting out to, sweatshops.
I would imagine their plans are to eventually turn Whole Foods into Amazon GO stores, rather than just keep operating as usual. They didn’t buy a grocery chain. They bought an infrastructure.
Amazon already does business with every affluent customer in America, they might as well take their grocery money too, if they can. Then there’s the whole online EBT market which they might be able to optimize with their superior tech skills. This is an extremely badly under served market. The only down side is that now they have to charge sales tax everywhere.
Peaked?
So, Tom, how much AMZN have you shorted? I would imagine it costs almost nothing to short AMZN (there’s a reason for that). Nothing quite like putting your money where your mouth is.
Please give us periodic reports on how you’re doing with this strategy.
Chip, you are sooo smart!
Please update us on your AMZN long position over the next few months.
Well Gary, I don’t own AMZN, but then I’m not the one claiming it has peaked (that would be Tom).
For the record, I am a long term owner of V (since about 2008) & BRK/A (1973).
And you?
You are right. WFM has not grown it’s net income for the past few years. Neither have other leading upscale brand delivery merchants that cater to the top 10% income demographic such as Nordstrom, Williams Sonoma, Ralph Lauren, Michael Kors and others.
This is telling because we know that has been no “real” spending growth by those in the bottom 90%.
This leaves the FAANGS to carry the S&P 500. Unlikely to last much longer. Even Nike and Starbucks peaked in July 2015. The trump reflation may have run it’s course.
I know we need to be careful when making forecasts. Heck, even ZH has been talking about the S&P 500’s last gasp since 2014.
As Manuel in Fawlty Towers used to say ” I know naathing “
Saddened by his death last year. What a great comedy actor.
“I know naathing”!!!!!
John Banner (Sergeant Schultz in “hogans heroes”): “I know Nuhhhhthing!”
I had accurately forecast in the early part of this year on one of the financial sites that Whole Foods has been bloodied by Trader Joe’s ( a subsidiary of Aldi/North) for being unreasonably expensive for organic foods and capitalizing on asymmetric information from overbusy newbees. There is not much that really separates the two companies, except the “fresh-fish” and “fresh-meat” counters in WF. Also, I forecast that WF will likely be bought out, I thought by the Japananese, though, I had a faint inkling at the back of my mind that Amazon the Ogre might be interested.
Now, I have a major complaint: These, WF and TJs and all the other commercial grocery companies are screwing the customers yet again: Green/Raw Bananas, unripe mangoes, strawberries, pears, papayas, old stale oranges ….. all the fruit. Then layer this with dangerously poisoned fruit and vegetables from both US and Central-South America. How in the name of God (!, just metaphoric usage) can WF or TJs call themselves “Natural and Organic,” food companies: They are just unprincipled liars, only somwhat better than the Safeways and Krogers and the monster Walmart. (see the May/2015 issue of Consumers Report on what fruits and vegetables to eat from what countries). Wegmans, a shade better and Cosco a lot worse, despite its pretensions……… This diatribe could continue, but have other things to do.
Let us educate the young kids in elementary school by emphasizing nutrition and teaching them what is right and having cooking classes as they did in Germany, Sweden, Denmark and other northern European countries and not this BS in marketing oneself and one’s fragile, selfish ego, Me, me, me, a la Trump and the politicians.
Bezoos will be on Walmart board before end of year! Algorithms gone wild?
The biggest ‘ difference ‘ between Trader Joe’s and Whole Foods is that Trader Joe’s focus is almost exclusively on prepared , boxed , canned and frozen foods whereas Whole Foods primary focus has been on fresh .
But you’re right … the bigger they both got … the worse both their products and customer service became . FYI one of my pet peeves lately in any of the chains is the ‘ vine ripened tomatoes ‘ .. with at least one in every bag being …. green … hmmm
As for the last paragraph …. AMEN brother .. preach it from atop the shopping cart … and tell em like it is . Though I’d include the French in that list .
Ever seen what they serve in the cafeterias of even the grammar schools in France ? Suffice it to say there’s three star restaurants here in the US that could learn a thing or two . The biggest joke ? The French do it for less than half the price US grammar schools feeding our kids abject garbage posing as food can
Kaj Krogers were always good to me When they made an error at checkout and I went to the courtesy desk they gave me three times the overcharge back And they gave me a name brand olive oil when they were all out of the sale item Can’t complain at all with the service at Krogers
Same here – and I’m betting Krogers will do well with a business plan and execution well within their capability.
A 14 % drop Kroger’s share price just because A dips a toe in the water of the toughest biz out there looks like a buying op
Of Kroger not A
Yeah, sourcing, another reason I won’t shop at Aldi here in Oz.
Here in Oz both the big grocers have online ordering and delivery and have had it for years. Tried it once as they were having some special – free delivery and so many $’s off.
Ok for canned and boxed items, but not for fresh items such as meat and fish. Those you want to see before you buy.
This deal will top-tick “the recovery” and Bubble #3. I don’t know what world American commenters live in but where I come from no one would buy groceries online.
You want to squeeze the avocados before you buy. The much-vaunted Amazon model of “you-HAVE-TO-buy-everything-online-because it’s-the future” won’t work in reality just as Kindle failed to de-rail the book and self-driving cars similarly won’t replace driving.
It’s comical reading dupes’ fanfares/fantasies in the self-drive arena. One commenter here will pull up articles and state how kids will be self-driving themselves to events so Mom and Dad don’t have to (buy a third self-drive car?). Physically impaired elderly with lost licenses won’t need to drive because licenses won’t be required on the roads. Sure, you betcha!
Oh, come now! Of course this will happen!
On Mars.
… or in some alternative universe / reality / dimension .
FYI ; Kreditanstalt . This Yank buys nothing online . Period . I/we try to keep my $$$ local [ shops etc ] as much as we can even going so far as to avoid the chains whenever possible
We Americans are strange that way. Kraft “guacamole dip” – the biggest selling guacamole in the country had less than 2% avocado and mostly hydrogenated vegetable oils.
Who cares as long as it’s green?
http://www.naturalnews.com/002702.html
“We Americans are strange that way ”
… which all comes down to the both the American subconscious , conscious and constantly reinforced ( by advertising etc ) preference of immediacy and convenience over and above our health . security , privacy and well being . Thats also why among all advanced western nations we are the most gullible falling for every kind of snake oil , cult and conspiracy theory imaginable .
Nope. It’s obviously the fault of the government :) Now you are blaming the victims again.
Raymond Chandler in one of his Philip Marlowe novels made a very sharp observation i.e. “crime is a symptom and not the disease.”
But then again, what do you expect when you have enough people believing this: https://www.washingtonpost.com/news/wonk/wp/2017/06/15/seven-percent-of-americans-think-chocolate-milk-comes-from-brown-cows-and-thats-not-even-the-scary-part/
USA, USA, USA.
We grow a garden and eat produce from it.
Surely, there must be some fault to be found with that.
Thanks for the 13 year-old article.
I’m no Kraft apologist, but surely you could have found something a bit more topical.
Oh well. When something is the best-selling item in its category, and has all the ingredients on the label, it says more about those buying it than the topicality.
Research Amazon GO stores. That’s what is likely happening.
Step 1: Reduce prices for prime membership to make EBT card users Amazon customers.
Step 2: Acquire US-based grocery supply chain to gouge EBT card users referenced in Step 1, location be damned.
Step3: Collect Sales tax everywhere.
Step4: Raise prices on everything from A to Z. :)
So upon closing of this acquisition ALL Amazon purchases in 42 states will be immediately subject to state and local sales taxes?
Here’s the list of states where Amazon collects sales taxes. I counted 47 states on that list. But I might have counted wrong because there are 4 states with no sales tax: Delaware, Montana, Oregon, and New Hampshire. And Alaska doesn’t have a state sales tax, though municipalities may charge a sales tax.
Amazon lost that battle years ago.
https://www.amazon.com/gp/help/customer/display.html?nodeId=468512
No. No, no, no, no, no. Amazon only recently started collecting sales tax in most states (~6 months? and 2 months ago for each phase). Let me reiterate: ONLY RECENTLY. They’ve been in business for some 23 years and didn’t collect tax in most states until now. (“We want to level the playing field” [I’ve repeated their line here before]). They had that advantage that local businesses didn’t, for 23 years. They are no white knight!
FYI: You counted 51 because D.C. is included. If a former President says there are 57 states, you can feel comfortable with 51 hehe.
Bee,
OK, I was being too general….
Amazon started collecting state sales taxes in Texas in July 2012. I’m not sure about local sales taxes. So yes, “years ago.”
Amazon started collecting sales taxes in California in September 2012. “Years ago.”
Other states followed over time. However, you’re right about a bunch of states where sales tax collections just began this year.
Bee,
“They had that advantage that local businesses didn’t…”
I totally agree. I have no idea why they got away with it for so long. In California, it was Wal-Mart that fought them tooth and nail and won. It was quite dramatic. Amazon threatened to boycott California in some manner but then backed off.
Food (groceries) from a grocery store are not subject to sales tax in California , and I believe most other states. Restaurant food is taxed.
Amazon borrows $13 billion for Whole Foods, the combined ‘value’ goes up by some $36 Billion.
Reminds me of $50 Billion Yahoo valuation coming mostly from owning $300 Billion Alibaba website.
Many owners of same imaginary dollar.
Lots of synergy ($26B now and much more in the future).
Amazon$1500 here we go.
In case if this riles up folks this is sarcasm.
A lot of that $36B came out of other retailers like Kroger, Target, WalMart, etc.
DH wrote -> I’m assuming they’ll eventually use Whole Foods as an implementation for their Amazon Go groceries.
I will go one step further – Amazon has a growing national warehouse presence. They are bulk shipping general merchandise products to these locations and storing / distrubiting from these “fulfillment” locations using local “independent contractors” for delivery. There is a new one in the Cleveland oHIo area. They advertise for delivery folks – ordinary people like most of us – saying you can earn $12 to $15 – or more – per hour on your own schedule. (IF my memory serves me right they were figuring one could make in excess of $20)
I will bet that most – if not all – of the Whole Foods locations will become one of those distribution points,,,,,,,, With very low warehousing costs for that part of the operation.
Might also do order online & pickup within a hour routine.
There must be more to it than simply distribution. With CRE tanking, you’d think they’d just buy more simple warehouse space for that, yeah?
I’m sure they also want to revolutionize grocery shopping.
A retail store like Whole Foods in high cost retail location doesn’t have the huuuge less-costly warehouse space of an Amazon fulfillment center. The two are very different and it wouldn’t make sense to use a Whole Foods in place of a large warehouse.
No, but they could build warehouses near wf and pick up the fresh food items there on the way. They have two hour delivery now in my town on some items. There is a wf nearby.
i was wondering how they will get the stuff to the household.
they maybe are using a commercial Uber model . anyways here is a link to their fulfillment centers. Amazons tentacles are ubiquitous , much to my surprise.
http://mwpvl.com/html/amazon_com.html
Refrigerator-freezer drones with robotic offloading equipment?
Here in San Francisco, they use little delivery companies with one to a few dozen vans, if that many. They have sprung up in large numbers. Some of the people have vests with the Amazon logo. Others come up in unmarked vans and no signs on their clothing and just hand you the package.
I assume they pick up at a local Amazon facility.
If that model spreads to other cities and other online retailers, UPS is going to have a problem.
Wow ,here in the west central Florida amazon deliveries are performed by conventional carriers .
I had no idea the amazon eco-sphere was that extensive. their delivery subcontractors/network could just as well pick up product at the whole foods distribution points. side note : all my amazon purchases didnot come with a packing list. i had to refer to my original order. not sure if i like this.
Amazon will bring to the supermarket business what Uber brought to the taxi business. Hype and an iPhone app.
What can Amazon do better than Walmart, Costco or any other pile of decent companies when it comes to food? Bezos thinks he’s got some new tricks that nobody else ever thought of? He doesn’t.
This is where Bezos is starting to make money and hates the idea of giving any of it to shareholders, employees or cutting prices. Now he’s just out buying stuff. He bought WaPo and is building space rockets.
He’s lost focus.
Yes and yes. There’s no there there.
Don’t forget that Uber also brought in-your-face law breaking and a predatory, sociopathic culture.
Because the behavior of digital monopolies is not predatory enough. It’s a growth area, and profit center.
They didn’t buy it with inflated shares of Amazon stock , they paid all cash
Amazon hasn’t paid yet. The transaction will take place a few months from now when it’s actually buying the shares. Yes, it seems, it will use cash to do that, rather than exchanging shares. It will likely raise cash before or afterwards. Amazon has all kinds of low-cost options, such as issuing bonds, issuing more shares, a credit facility from banks, a bridge loan to be replaced later by issuing bonds…
At the end of the quarter, it had $21 billion in cash and marketable securities, but some of that is likely tied up in its overseas operations, and it needs a good part of that cash as working capital to operate – it has $37 billion in “current liabilities” that are coming due soon on a rolling basis.
It also has $8 billion in long-term debt and another $14 billion in “other” long-term liabilities.
They will fight over price and Amazon will have the merger fee waved ? Price per share drops more because of the bear market….. Shooting pennies in a barrel!
Papa eating steak tonight?
Didn’t S&P rumble about Amazon’s rating after news of the WF deal was made public ?
All that additional debt and a lowered raiting combined with Amazon’s thin marginals, that’s an interesting equation although Amazon still have their own money printing facility, ie ability to issue and sell new shares. And Bezos has got a lot of political muscle, after all he owns the WP among other things.
I don’t get it, Walmart online beats Amazon in price almost every time.
True, Amazon stinks for prices, I need to search their other third-party dealers for better prices. The only thing good about Amazon is that it’s great for items hard to find items (like blank tape cassettes) Lol.
I agre. I buy most of my basics from Walmart.com. Too many enamored with Amazon stock thinking they have no competition . Untrue.
James
Gosh. Some shoppers must value something other than simply “lowest cost”.
Probably explains why some people drive Kia’s and some drive BMW’s.
Perceived prestige?
Mental midgets?
Earth to Bee:
Not every human on the planet sees everything the way you apparently do. Some people do things differently for reasons that have nothing to do with your judgmental ad hominems.
I suppose you think we all ought to have the same favorite color & song, should all watch the same movie and root for the same football team.
This type thinking only works for those getting to make & impose decisions on everybody else.
chip—you extrapolated all of that from 4 words? lol.
i guess you didn’t read some of the comments here insinuating that amazon is a premier business (it’s not [it sucks]). on the nightly business report, the news anchor said amazon and whole foods have the same class of clientele. rubes? lol.
only a dupe/mental midget would feel an air of sophistication from buying produce at a perceived as prestigious place. same goes for the $299 bmw leases ;)
So Fed supplies money to Wall St. folks who then buy stocks issued by amazon, effectively doing what Ben did with Treasury — a QE that is exclusively for Amazon.
This will only make Amazon a monopoly as Fed continues (or already armed Amazon) to let Amazon give away groceries for free. Once a monopoly, Amazon can then screw us over, upfront, by jacking up prices. So we get screwed twice. First time was when Fed transferred wealth from savers to Amazon and friends.
So the Fed is now out there trying to destroy the rest of the economy through Bezos. I am trying to understand how Fed can even pretend to help the common man anymore.
The proof is in the chart.
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/05/23/20170525_bezos13.jpg
AOL
Amazon On Line. just saying…
Bezos, indeed, is a creature nourished by the Fed.
What if all the people got together in the United States and decided to not buy anything from Amazon?
People have the Power!
That won’t happen. Just look at uber — liberals rile against it but show weak moral fiber when they fall back to uber in times of need. This was the gist of a piece that Farhad Manjoo wrote in NYT earlier this week.
Most people are weak and they will give up easily even when options exist. With amazon, it is difficult to practice since the competition is still stuck in business models that need them to make money — so 90s. I tried to use Barnes and Noble as an alternative a few months ago — they take forever to deliver even when you are a preferred member. I finally gave up and went back.
I agree, there are a lot of online retailers out there, not just one. And it’s a good idea to spread the business and shop around online.
But brick and mortar? And pretend it’s 1980 and fight the traffic and go to Macy’s Men’s store and not find what you want or not in your size, and if you do find something, stand in line at the cash register, and then fight the traffic all over again, and pay a big price for all this? That’s just pure misery.
Thankfully they shut that thing down last year (in San Francisco) and sold the building.
Wolf, between you and TJ Martin, I think the truth is somewhere in between. Picking up a shirt from the store is just not the hideous torture you make it out to be. And fossil fuels? How will the shirt get made? How will it get delivered? How do you know if you will like the fit? Will you just send it back and wait another few days? Don’t all the returns eventually burn even more fossil fuels? … etc etc etc
Anyways, I just want to point out that mega-acquisitions were also happening around the time of the Weimar Republic, no?
Except Brick and Mortar supports the local tax base.
I wonder wether there’s available realible statistics on how men and women use online shopping. It has never ceased to amaze me how the womenfolks at home can spend time at shopping centres ;)
Or maybe it is a result of evolution, once upon a time the men did the hunting, requiring fast, precise and well planned action while the women did handle the gathering of foodstuffs. And today the shops are filled to the brim with nice stuff waiting to be gathered up. At least I do prefer a fast, precise and well planned strike to pick up something needed from a shop ;)
As a woman I won’t buy my clothes or shoes on line, because I have try them on in the dressing room to see how it fits. I like to examine my clothing purchases to see how well it is made. One of the biggest problems today is the fashion industry is making some really hideous and ugly clothing. The designers must hate women or on drugs.
I buy clothes and shoes online but only from brands I am already familiar with, brands whose sizes and quality I trust.
However, my credit card info was recently hijacked by one of these stores and used to open an Uber account. It was not Amazon.
I view Amazon’s acquisition of Whole Foods as a corporate bail-out just like Microsoft buying LinkedIn. Both Whole Foods and LinkedIn had their share prices mauled prior to acquisition.
The hope is AMZN actually has a plan for WFM assets. MSFT has yet to demonstrate they had one for Linkedin.
Probably also explains why MSFT has a PE of 30, and a 10-year stock price range of $30-70, while AMZN has a PE of 180 and a 10-year stock price of $42-990.
I can see someone at this point in the acquisition saying they don’t understand the business logic (I certainly don’t), but jumping to the conclusion AMZN just bailed out a grocery store for $13B is goofy.
Correlation or Causation?
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/14/20170616_EOD7.jpg
You have manipulated the visual display of two similarly shaped charts:
– Timeframe is fairly short (15 months)
– The central bank graph goes from 11,000 to 14,000 (75% increase)
– The AMZN graph goes from 500 to 990 (100% increase)
correction:
– The central bank graph goes from 11,000 to 14,000 (27% increase)
And on longer horizon.
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/05/23/20170525_bezos13.jpg
You have seriously manipulated the visual display of two similarly shaped charts:
– Timeframe is 5 1/2 years
– The central bank graph goes from 8,000 to 14,000 (75% increase)
– The AMZN graph goes from 200 to 990 (500% increase)
The net effect of the scale manipulation is you force the rate of change (1st derivative of the graphs) to look the same when they’re materially different, especially in the longer-term graphs. AMZN actually grows 6 times as fast as Central Bank balance sheets.
In my experience as a CFO, this is a common technique when clarity is not, shall we say, the primary objective.
There is nothing deceitful about the chart.
The correlation of Central Bank credit creation to Amazon stock is 6:1.
Correlation is not necessarily causation.
KAM
Well it’s 6-to-1 in the second chart (5 1/2 year), but 3-to-1 in the first chart (16 months).
As an ex-CFO, I know if you fiddle with both the scale & the timeframe, you can come close to making almost anything look like anything else.
Don’t trust Amazon, this is the same company that rose ir lowered the price of books depending on the cookies on your web browser and that did many more things like that just for extra money.
Wanna know what great innovation will Amazon use on brick and mortal stores? Surge pricing.
Jeff Bezos probably couldn’t afford to shop at WFM as a yute. Now he can afford to buy it. Washington Post probably wrote unflattering things about Amazon back in the day too.
Jeff 999 balloons.
Jeff buy the Washed out Post.
He out stunned the purchasing of IBM.
Bzezos, the little Napoleon, is stretched too far.
Just another insecure abandoned boy seeking renewed attention.
Walmart, Kroger, Aldi will gang on him, will out starved him.
The wealthy elite wouldn’t like Amazon Service Merchandise in their
midst.
Bzazi set the world on “Fire”, but it is just a matter of time that he will get burnt himself.
The food guys eat Amazon like a locus of swarm of drones, leaving
nothing behind. For them, he became a lucrative standing target
The winners : farmer markets !!
Supermarkets will test boutiqeu farmer market, – twice a week, in the summer time, in their midst, – to attract shoppers to buy fresh food, by touching food and smelling food and looking at the intense beautiful colors of fresh food, rather than by click a mouse. People became kind of the new type of robotic buyers, the 1984 shoppers.
Alexis will dictate them where on the screen you purchase food.
Shoppers are falling for Bzazos cleaveg
Everybody here who says they get the cheapest prices at Walmart, should remember that the Walmart family makes enough from selling cheap stuff to be the richest family in America. If the Walmart family has become the richest family in America selling cheap stuff, then Bezos can out sell them with his technical skill. There’s plenty of wiggle room in the spread.
Isn’t Walmart barely making it? Their profits margins are about 1% last I heard.
Adapt or die, remember Blockbuster? They got too late into video streaming and didn’t get rid of their brick & mortar stores fast enough and they are gone save for like a few stores that keep the name for some reason.
Still, if Alphabet bought Walmart then Amazon would cry under his bed.
Amazon Fresh was a test for food delivery. Now they can expand it with WF.
See: https://www.youtube.com/watch?v=UdIzm_fy6nM
Amazon Go would be of benefit to Whole foods. This technology is interesting and time saving, but it will kill a lot of jobs.
See Amazon Go video on this website : https://www.peridotcapitalist.com/category/retail/
The delivery idea is not so new after all. I remember the Milkman delivering milk in glass bottles, which you then left the empties for him to pick up next time in the wire basket, and also delivering , eggs, butter and juice. Nice service for the stay at home Moms with lots of kids and the elderly.
Kroger reported part of its loss was due to other stores cutting cost of milk and eggs, which are the most purchased items. They had to match the price to keep customers. Ironic…milk and eggs which used to be delivered.
Does anyone remember Schwanns weekly delivery service?
I think food delivery in general is a great option for certain demographics. For retirees, in good health, with a lot of time on their hands…then probably not so much. Once the retirees become the elderly, then this option will be a godsend.
You’re right—Bezos is no innovator. I remember small towns used to deliver groceries to the elderly years ago. (Back when people were cared for and not treated as numbers by the corporate bozos).
Minnesota-based Schwan’s still delivers food. “Home food delivery is hot, but Minnesota’s Schwan’s has done it for 65 years” is a recent headline :)
The timing of this deal with Wolf’s Albertsons article is uncanny.
Now, let’s look at exactly what Amazon is doing. They bought a bunch of brick and mortars that are extremely overvalued because everyone (even Walmart) is beating Whole Foods at their own game. Now, apparently if we read the tea leaves, these B&Ms are going to be the mini-distribution centers for Amazon to deliver groceries to everyone’s front door. Does Wall Street think that home delivery of groceries is a new idea? Every B&M has tried it ever since the inception of the internet and online sales are still a tiny percentage of grocery sales. The simple fact is that people want to go to a physical store and choose their own produce and steaks and see what’s new there. That won’t change by Goliath getting into the business.
Every innovation company makes that huge bad decision that proves they are only human and IMO this is Amazon’s.