For good reason, people carefully watch what Amazon does. And their recent offer to acquire Whole Foods is no exception.
What the Whole Foods Sale Means for the Grocery Sector
Amazon’s acquisition of Whole Foods sets the stage for a battle between the e-commerce giant and Walmart for supremacy in the grocery space Landmark Capital Advisors’ Adam Deermount tells GlobeSt.com.
Interviewed in Globest.com by Carrie Rosenfeld, Adam Deermount of Landmark Capital Advisors thinks the sale portends an epic battle between Amazon and Walmart. Deermount relates that he’s always felt “the legacy players in the grocery business were in trouble”—but that their competition came from Walmart.
An Epic Battle Brewing
Deermount points out that it’s time for a head-to-head between the two giants:
The two have been encroaching on each other’s turf for a while now, with Walmart moving into e-commerce and Amazon into brick-and-mortar.
And one of the results, he says is:
the beginning of the end for a lot of legacy players caught in between the two giants.
Comparing Amazon to Walmart, Deermount sees some advantages on the Amazon side:
First off, it has mastered both last-mile distribution and branding in a way that Walmart has not.
And another important advantage is in reputation, with Deermount maintaining that “…while upscale consumers look down their noses at Walmart, the same cannot be said of Amazon.”
In terms of the transaction itself, one thing that Deermount says stands out to him is the size of the deal at nearly $13B—Amazon’s largest acquisition to date.
Why Amazon Wants The Deal
When Globest.com asked him why Amazon wants the deal, Deermount was ready with four reasons:
- First, he notes that Whole Foods is known for having excellent locations, in fact 460 of them. His take is that this is the beginning of a distribution network extension—so the grocery business isn’t even their whole focus.
- Amazon is attracted to the volume inherent in the grocery business. As he points out “grocers are one of the few retail experiences that we take part in each and every week. We may not go clothes shopping or go out to eat on a weekly basis but nearly every American goes to the grocery store and does so in high frequency. This makes a highly trafficked grocery store a potential goldmine for a retailer that relies on high volume like Amazon, which already does cross-selling and low-margin volume retailing better than anyone else.”
- Whole Foods is a well-regarded name brand, especially targeted at an affluent demographic.
- Even with some difficulties, the margins at Whole Foods are significantly better than industry average.
Looking ahead, experts including Deermount think there may be other suitors interested, and that a bidding war could arise. In the end, he still thinks Amazon will prevail:
It’s highly doubtful that anyone could ultimately beat out Amazon’s bid, but there are many competitors who would love to make them pay up as Amazon’s entry into the space becomes a matter of survival. In fact, Whole Foods is trading above the level of Amazon’s bid in expectation of a bidding war.
Deermount doesn’t exactly sound an optimistic closing note, saying “Grocers have now officially been served notice, and pharmacies could be next. The only things that I’m certain of when it comes to retail in the US is that we still have way too much of it, and it will look very, very different about 10 years from now”.
What Should An Investor Do?
Times are a changin’, that’s for sure. To achieve your investment goals and reduce risk, it’s more important than ever to have an expert in your corner. René Nelson and the Team at Pacwest Commercial Real Estate carefully track trends in the retail sector, and everything else affecting commercial real estate. Call her today at (541) 912-6583.
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