Amazon's purchase of Whole Foods 'bought a distribution network,' expert says

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Online retail giant Amazon is making a bold expansion into physical stores with a $13.7 billion deal to buy Whole Foods, setting the stage for radical retail experiments that could revolutionize how people buy groceries and everything else.

As Recode smartly pointed out, the deal won't just give Amazon control of a major grocery chain, it will also give the ecommerce giant access to "more than 400 stores to use as delivery hubs".

The deal could be "transformative", Moody's lead retail analyst Charlie O'Shea said, "not just for food retail, but for retail in general". She feared the merger would simply create another, huge company with too much power over the American consumer.

"You never know where it comes from", she said. It does well if you live in the right place. "It's a bit unsettling".

With the Whole Foods acquisition, analysts anticipate that Amazon will be the third largest retail grocery, behind Wal-Mart and Kroger, by 2021.

"I think we will be a bell-weather for what will happen around the country", said Ed Fox, marketing professor at the Southern Methodist University Cox School of Business.

The grocery chain, known for its organic options, had been facing increased pressure from rivals, including European grocery chain Lidl, which is planning to enter the East Coast market, along with Aldi and Trader Joe's. Whole Foods is courting the discount shopper with its lower cost brand 365.

Walmart, which has the largest share of the USA food market, has already been pushing harder into e-commerce to build on strength in its stores and groceries.

"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.

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"This will definitely make the market more competitive", she added.

Just two years ago, Whole Foods CEO John Mackey predicted disaster for Amazon's foray into grocery delivery, telling Bloomberg BusinessWeek it would be "Amazon's Waterloo".

Whole Foods, founded in 1978, has more than 460 stores in the United States, Canada and the United Kingdom, employs 87,000 people and is the leading natural and organic foods supermarket.

In Whole Foods, Amazon is acquiring a company that has recently come under pressure from investors for its lagging performance.

But Instacart is also a competitor to Amazon's growing grocery delivery service, AmazonFresh.

"I think that this takes all of the pressure off Whole Foods and gives Whole Foods the opportunity to revitalise that business and, of course, it stems the criticism from all of these activist investors", said Neil Saunders, managing director of GlobalData Retail in NY. And it should be able to bring cost-cutting technologies, such as robots to move inventory around, while the company gets a better picture of customers by marrying data from Amazon and Whole Foods' loyalty programs. Amazon is all about technology, and it's very likely that technology will be applied to the Whole Foods shopping experience.

"This deal should leave no doubt that Amazon is deadly serious about dominating all aspects of retail", Paul Cuatrecasas, chief executive of Aquaa Partners, a London-based investment banking firm, said in an email.

Whole Foods was quick to point out, in a statement, that its stores will continue to operate under the Whole Foods Market brand, that its headquarters will remain in Austin, Texas, and that John Mackey will stay on as CEO.

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