Amazon delivers disruption to grocery business

“The companies will have to respond,” he said.

Amazon said it will pay $13.7 billion for Austin, Texas-based Whole Foods. The deal unites the company that persuaded people to buy books — and then everything else — online with the grocery chain that popularized organic and natural foods.

On Wall Street shares of Kroger, a metro Atlanta giant and the nation’s biggest grocery chain, fell 9.2 percent on Friday and are down 35 percent this year. Walmart shares lost 4.6 percent.

Whole Foods will still operate under its own name, but Amazon is expected to boost online ordering options while also using the chain’s stores to augment its broader web business.

The deal could be “transformative,” Moody’s lead retail analyst Charlie O’Shea told the Associated Press, “not just for food retail, but for retail in general.”

Groceries are already a fiercely competitive business, with low-cost rivals like Aldi putting pressure on traditional chains and another discounter, Lidl, opening its first U.S. stores just this week. Whole Foods itself had launched an offshoot chain named after its “365” private label brand in a nod to the popularity of no-frills chains.

The Amazon-Whole Foods combination could put even more pressure on those chains and other big grocery sellers. Walmart, which has the largest share of the U.S. food market, has been working on lowering prices, while Target has been struggling to turn around its grocery business.

“Dominant players like Walmart, Kroger, Costco, and Target now have to look over their shoulders at the Amazon train coming down the tracks,” O’Shea said.

Amazon’s online prowess online, its ruthless focus on efficiency and its fierce ambition could mean lower prices at Whole Foods, along with an aggressive meld of internet sales.

‘Click and collect’

So most likely, Bowman said, Atlanta chains will soon be renovating and beefing up their “click and collect” programs that let customers select and buy items online, then swing by the store to pick them up.

Kroger, for instance, has been pushing its ClickList service, which offers online ordering and at-the-door pickup. Archrival Publix is among several grocery chains that have partnerships with Instacart, an independent home delivery service.

Despite its association with organic foods and healthier eating, Whole Foods, which had sales of about $16 billion last year, has struggled. Larger rivals like Kroger or Costco have invaded the same turf – doing so with better efficiencies of sale — while smaller chains like Fresh Market and Sprouts have siphoned off customers as well.

Speculation about consolidation in the industry had grown in recent months. Whole Foods was under pressure due to a two-year decline in same-store sales and a fallen stock price over the past year or so — although shares spiked Friday.

But with an aggressive approach, Amazon could help Whole Foods recoup market share and threaten its larger rivals.

The grocery business may account for more than $700 billion a year in sales, but it is notoriously low-margin – a slight shift in circumstances can flip a venture from black to the red. So Atlanta grocery chains, like department stores, could find themselves closing some that are too close to the line.

‘A little bit overbuilt’

“People could argue that we in Atlanta may be a little bit overbuilt,” Bowman said.

Whole Foods has about 460 stores, including eight in metro Atlanta, where the market leaders are Kroger, Walmart and Publix. Ingles also has a strong presence, while German discounter Aldi has made a push into the market. So, too, have Fresh Market and Sprouts, which target customers seeking an alternative to big chains.

Amazon became the $136 billion-a-year behemoth it is today without a retail outlet. Its business includes sales and delivery of a dramatic range of products, but with the Whole Foods acquisition its toolbox will include a network of stores that could be used in creative ways.

“Amazon did not just buy Whole Foods grocery stores,” Dennis Berman, a Wall Street Journal editor, wrote on Twitter. “It bought 431 upper-income, prime-location distribution nodes for everything it does.”

Amazon has also lately been experimenting with bricks-and-mortar, trying out employee-less ideas like wireless checkouts that let a customer wheel a cart past sensors that “read” what’s in it and charge the customer.

Because Whole Foods is not known as a discounter, its clientele skews older and more affluent than the typical millennial. Yet younger customers are more likely to buy items online.

So if Amazon guides Whole Foods into lower prices, it stands to combine the chain’s demographic strengths with the muscle of its online business, said Darren Seifer, analyst for the NPD Group.

The most intense online consumers still spend 75 percent of their money in real stores, Seifer said. And even members of Amazon Prime, the fee-based service that provides quick shipping on all purchases, are typically not buying their fresh food items online, Seifer said.

“Amazon realizes that they have a tremendous opportunity here,” he said. “If another retailer is lacking all that, they may have to scramble to match it. Otherwise, they may get left behind. I think this is a potential game-changer.”

— Staff writer Stephanie Lamm contributed to this report.

Georgia’s grocery giants

(number of stores in the state)

— Ingles, 210

— Publix, 184

— Kroger, 174

— Aldi, 58

— Sprouts, 16

— Whole Foods, 9

— Trader Joe’s, 6

Note: Does not include Walmart, Target and other retailers that offer groceries at some stores