Bulls Favor Amazon Plan to Disrupt Grocery Business
Why Amazon Will Take Over the World
Amazon.com, Inc. (NASDAQ:AMZN) did something that caught many market analysts by surprise. It announced that it would pay $13.7 billion for high-end brick-and-mortar grocery chain Whole Foods Market, Inc. (NASDAQ:WFM).
When I previously discussed Amazon.com a few weeks ago, my view was that a deal between the two companies was somewhat unlikely, despite the fact they talked about a takeover in December 2016. The speculation was that no deal was going to be made, until now.
Amazon was thought of as being interested in the highly-competitive grocery business after establishing about 31 “AmazonFresh” stores in the United States and Europe.
The idea of a venture by Amazon.com into a brick-and-mortar operation, however, was somewhat unthinkable, as it has yet to occur with any of the major online operators.
But clearly, Amazon was intrigued by the idea, especially given its superior supply-chain management expertise to deliver goods, and its ability to disrupt the business sectors that it enters.
So, instead of taking years to build up the grocery capacity, the addition of Whole Foods immediately adds about 460 stores in the United States, Canada, and the U.K.
Now Amazon has the reach to expand its other business divisions, which may include the ability to order various products online, with pickups available at the grocery store locations.
Grocery shoppers will likely also be able to pre-order groceries online for pickup, or perhaps there will be an Uber-like delivery system. Whole Foods failed to do this but, with Amazon at the helm, anything is possible.
Amazon will likely be able to achieve better pricing for its grocery goods, as it has done in other business sectors.
While the details of how to turn things around at Whole Foods are yet unknown, we do know that Amazon CEO Jeff Bezos will incorporate some great ideas that encompass technology.
My Bull Case for AMZN Stock
Amazon.com has proven its dominance in the online retail space, where the company is viewed as a disrupter. Just ask the likes of Wal-Mart Stores Inc (NYSE:WMT) and Target Corporation (NYSE:TGT) about the impact of Amazon on their sales figures.
So feared is Amazon that the announcement of the Whole Foods deal drove down stock prices across in the board in retail and grocery chains.
The idea of competing against the ruthlessness of Amazon is downright frightening for the majority of the brick-and-mortar grocery operators.
Chart courtesy of StockCharts.com
It was only a few weeks ago that the company opened an Amazon bookstore in New York City, after opening bookstores in other U.S. cities, starting in 2015.
Perhaps the addition of the Whole Foods network will result in Amazon selling other non-perishable products at these locations. It all makes sense to me.
If you don’t know anything about Bezos, take an hour to watch CNBC’s Amazon Rising documentary and you’ll understand why AMZN stock is a keepsake for decades to come.
