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Amazon.com, Inc. (AMZN) Stock’s Whole Foods Buyout Is Strategically Smart

Amazon.com's (AMZN) Whole Foods buyout makes strategic sense

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News that Amazon.com, Inc. (NASDAQ:AMZN) would buy Whole Foods Market, Inc. (NASDAQ:WFM) sent retail stocks, especially those reliant on selling food, sharply lower on June 9. Amazon.com will pay for the $42-per-share offer, which values to acquisition at about $13.7 billion, entirely in cash.

Amazon.com, Inc. (AMZN) Stock's Whole Foods Buyout a Seismic Event
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For the online retailer, adding bricks and mortar assets to its retail channel makes sense strategically for the company. The deal is more than Alexa technology making online grocery ordering the next big thing.

Market Caught Off-Guard

Market participants clearly did not expect the WFM stock acquisition. Target Corporation (NYSE:TGT) and The Kroger Co. (NYSE:KR) fell 5% and 9%, respectively, following the news. Amazon.com’s aggressive pricing strategy and effective online business model will add even more pressure on those companies.

Still, integrating Whole Foods with Amazon.com may have some challenges. The former incorporates management concepts that are vastly different than those used at Amazon.com. But if Amazon.com is successful in figuring out how to delivery groceries within its well-established model, then the 30% premium it is paying for Whole Foods is worth every penny.

Challenging Wal-Mart

Steady investments by Wal-Mart Stores Inc (NYSE:WMT) in building an online presence may have spurred CEO Jeff Bezos in making the deal.

Walmart offers many convenient services that are not available from Amazon.com, including drive-by pickup. On its mobile app, customers may view a weekly store advertisement, pay via Walmart Pay and search for items at brick-and-mortar locations. Amazon.com does not have much of a brick and mortar presence. Owning Whole Foods Market would change its strategy of depending on sales solely through online channels.

The acquisition comes at a time when markets are growing more and more negative on retail businesses that depend on physical stores. Falling sales at Macy’s Inc (NYSE:M) or J C Penny Company Inc (NYSE:JCP) are indications that specific brands have trouble growing sales. A physical store presence is still a critical component for even online retailers like Amazon.com.

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Article printed from InvestorPlace Media, http://investorplace.com/2017/06/amazon-com-inc-amzn-stock-world-whole-foods/.

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