What’s With Amazon’s Grocery Obsession?
The company reportedly considered buying Whole Foods last fall. This, as the company is also thinking about a new grocery-store without cashiers.
Amazon reportedly thought about buying Whole Foods last year. The retailer’s big interest in groceries is somewhat puzzling. ILLUSTRATION: WHOLE FOODS MARKET
Grocery stores are a tough business. It’s hard to sell raw ingredients at much of a mark up, while packaged-goods companies save much of the profits for themselves. That’s a reason why even the big grocery chains are low-margin businesses -- only a small slice of revenue turns into profit.
Whole Foods is the best of the bunch from a profit standpoint, thanks to high-quality organic fare that sells at more premium prices. But even Whole Foods is struggling. Shares peaked in 2013 at $65. They’re worth basically half of that today, at a recent $34.22.
But Whole Foods investors have had new reason to be optimistic this week. First an activist investor took a big stake in the firm, raising hopes that the company might be sold. Then on Wednesday, Bloomberg reported that Amazon had considered buying Whole Foods last fall. Any deal for Whole Foods would easily surpass $10 billion, given the company’s stock market value.
This one is a bit of a head-scratcher. For one, Amazon has never made big acquisitions. The e-commerce pioneer prefers to build its own businesses or acquire bolt-on type acquisitions.
Secondly, it’s hard to figure why Amazon would want in on a struggling brick-and-mortar business, the very thing Jeff Bezos has spent years killing off.
Amazon seems to have spent plenty of time thinking about groceries lately. The company has an innovative convenience store for employees in Seattle that uses technology to automatically track purchases -- no cashiers or checkout lines. Until recently, Amazon was planning to roll out the “Amazon Go” concept to consumers nationally. For now, though the idea has been put on hold.
If Amazon gets impatient, there’s a big brick-and-mortar grocery chain still waiting to be bought.
Big Picture: Amazon has spent a lot of time thinking about grocery stores lately, even though they struggle to make money.
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