Amazon gets physical

The online retailer is buying a supermarket chain. The logic isn’t obvious, but the deal will shake the industry. Ben Judge reports.

The online retailer is buying a supermarket chain. The logic isn't obvious, but the deal will shake the industry. Ben Judge reports.

The $13.7bn bid by online retailer Amazon for US grocery chain Whole Foods certainly seems to have made Whole Foods' top brass happy, says Jessica Dye in the Financial Times. Chief executive John Mackey "wasn't exactly coy" about his feelings regarding the tie-up: "I am, like, super excited. It was truly love at first sight," he gushed when speaking to his employees after the deal was announced. Co-chief executive Walter Robb was similarly starstruck. "This is a day of magic. This is a day of pixie dust," he said.

MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

That's no surprise, says Shira Ovide on Bloomberg Gadfly. Groceries account for "about 30% of total US personal spending", but little is spent online at present. "The big question is whether Amazon sees the future of groceries as online delivery, shopping in store, or a hybrid." The truth is that nobody knows not even Jeff Bezos, Amazon's founder. However, Bezos can afford to experiment, and "will slash prices and bleed money for years in groceries if that's what it takes".

It's not yet certain that Amazon will end up with Whole Foods. Some analysts are already speculating that the approach could lead to a bidding war. For example, other retailers such as Walmart, Target and Kroger could bid because they may "have too much to lose not to bid", Karen Short of Barclays tells CNN Money. Even if they don't succeed in prising Whole Foods away from Amazon, it could be worth their while to drive up the price and force Amazon to pay more. Whatever happens, says Ovide, "it's safe to say that the boring US grocery business is about to become much more interesting".

Ben Judge

Ben studied modern languages at London University's Queen Mary College. After dabbling unhappily in local government finance for a while, he went to work for The Scotsman newspaper in Edinburgh. The launch of the paper's website, scotsman.com, in the early years of the dotcom craze, saw Ben move online to manage the Business and Motors channels before becoming deputy editor with responsibility for all aspects of online production for The Scotsman, Scotland on Sunday and the Edinburgh Evening News websites, along with the papers' Edinburgh Festivals website.


Ben joined MoneyWeek as website editor in 2008, just as the Great Financial Crisis was brewing. He has written extensively for the website and magazine, with a particular emphasis on alternative finance and fintech, including blockchain and bitcoin. 


As an early adopter of bitcoin, Ben bought when the price was under $200, but went on to spend it all on foolish fripperies.