
Why the Amazon-Whole Foods Deal Has Grocers Wearing Their Poker Faces--for Now
In business, a good poker face goes a long way.
Amazon.com Inc. (AMZN) - Get Report is one step closer to disrupting the grocery industry after Whole Foods Market Inc. (WMT) - Get Report shareholders approved the e-tailer's takeover on Wednesday, Aug. 23, but competitors are playing it cool.
And they should be—for now.
The deal is still subject to regulatory approval, and that will give rivals some breathing room.
So who should be concerned now? Nearly everyone in the sector, but the smaller guys have more to lose right off the bat.
"Specialty regional players," Telsey analyst Joseph Feldman told TheStreet Wednesday morning, alluding to services like FreshDirect and Peapod that deliver products to the door. "The conventional guys have a little bit of lead time."
In the short term, Whole Food's only big play may be to lower prices, he said. "Even if prices were cut in half, I don't think the core Kroger shopper or the core Walmart shopper is going to wake up and all of a sudden say, 'Oh, I'm going to Whole Foods today.'"
Kroger Company (KR) - Get Report and Wal-Mart Stores, Inc. (WMT) - Get Report seem, at least on a public front, not too concerned. Walmart, after all, is still the king of cheap food.
"It's going to be interesting to see how [the merger] evolves," Kroger CFO J. Michael Schlotman told investors in June at the Oppenheimer Annual Consumer Conference. "I think they have bigger plans down the road. We'll see what those wind up being. Our natural and organic business is a $16 billion-a-year business, which is bigger than Whole Foods' total annual sales."
In other words, Schlotman is confident that Whole Foods will not immediately affect—let alone, steal—his customer base.
Walmart is even bolder in its nonchalance.
"We feel great about our position," a spokesperson said in an email, repeating the company's initial statement following the announcement of the merger.
Walmart U.S. CEO Greg Foran touted Walmart's online grocery pickup platform in a media call Thursday, Aug. 17, hinting that the chain has delivery plans for produce. "Amazon is our really strong competitor, so I don't know for sure what they're going to do. Are they going to get into the space?" he told reporters. "Maybe. We've got a good strategy. I'm comfortable with what we're doing."
Walmart, in fact, already announced a partnership with Uber to bring its online grocery delivery service to the Dallas and Orlando markets.
At some point, though, the heat will rise for Walmart, Kroger, and their brick-and-mortar cohorts.
"In the longer term, everybody should be looking to see how Amazon will leverage stores as pickup points, distribution centers and tech innovation," said Feldman. "But these things will come a little later."
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