Amazon said last Friday it would spend US$13.7 billion to acquire grocery chain Whole Foods Market Inc., marking the largest deal for the e-commerce giant which now has a market value of US$480 billion.
The share price of Amazon and Whole Foods Market rallied 2.4 percent and 29 percent respectively on that day, showing investors’ approval. US traditional retailers, on the other hand, suffered a heavy sell-off.
Wal-Mart, Costco, Tesco and Target plunged 4.7 percent, 7.2 percent, 5.2 percent and 4.5 percent respectively, reflecting fears that their business is being further eroded by Amazon.
Although many people have embraced online grocery shopping, fresh food has remained a category where brick and mortar shops have an edge.
After bagging Whole Foods Market, Amazon is set to step up the pressure on traditional players in the fresh food sector.
Established in 1980, Whole Foods runs more than 400 stores across the United States. It’s the largest supermarket in the US focusing on organic food. Its stores can be found in middle-class neighborhoods and high-end shopping malls.
The company is one of the physical retailers that are able to compete with e-commerce giants as a growing number of Americans are eating healthier. Its annual sales revenue rose 2.2 percent to a record US$15.7 billion last year.
This is also the first time for Amazon to get into traditional retailing in a big way. Just days before the deal was announced, Amazon filed an application for a new patent called “Physical Store Online Shopping Control”.
The technology allows Amazon to intercept network requests. So when someone in or near its shop searches for, say, the price of a certain shampoo brand, Amazon would know and it can automatically send that potential customer a related, more competitive offer.
And there could be more tricks up its sleeve.
In terms of combining online and offline operations, Alibaba is ahead of Amazon. The mainland e-commerce titan has already acquired retailers like Intime Department Store, Suning Commerce Group and Lianhua Supermarket over the past few years.
Last year Alibaba put forward the concept of “new retail”, which means the lines that divide traditional retail and e-commerce are disappearing.
In the future, perhaps only players that can provide the best experience to shoppers both online and offline can survive and thrive.
This article appeared in the Hong Kong Economic Journal on June 12
Translation by Alan Lee with additional reporting
[Chinese version 中文版]
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