Whole Foods Could Be The Next YouTube

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From Seeking Alpha:

The big speculation is whether there will be a bidding war for Whole Foods now that Amazon has made a play for one of the nation’s leading organic foods grocers. That is, do whatever it takes to prevent Amazon from landing Whole Foods.

The case can be made that other retailers, such as SuperValu or Albertson’s, need to come in and prevent Amazon from buying up Whole Foods.

For one, the possibilities of a Whole Foods owned Amazon is rather limitless. But a major grocer could enjoy some impressive synergies with Whole Foods. Yet, the only company with deep enough pockets to go head-to-head with Amazon in a bidding war is Wal-Mart. However, Wal-Mart has its own ‘demons’ as it looks to right-size its own 4,600 store base and to figure out how to blend its online presence with its physical presence. Still, for Wal-Mart, the big benefit could be cost savings via synergies.

For John Mackey, the Whole Foods CEO, it’s a win as he gets to keep his job. Mackey is also a fan of Amazon’s ability to look to the ‘long-term,’ noting “One thing I absolutely love, love so much about Amazon is they think long term. They have had the courage that almost no other public company has had: the courage to, basically, resist the drumbeat of short-term, quarterly earnings that have had us trapped here for a couple of years, as our same-store sales came down.”

. . . .

For Amazon, it’s very different. The company gets a guy who knows a thing or two about organic groceries.

The bigger opportunity for Amazon isn’t in selling organic produce, however, it’s about turning Whole Foods into a tech company. This could be one of those seemingly small deals that turn out to be huge wins. Much like we have seen with Google’s buyout of YouTube, and Facebook’s purchase of Instagram. Google bought YouTube for $1.65 billion in 2006 – today it’s said to be worth $90 billion or more. With YouTube, there have been immense cross-selling opportunities, and it’s given Google the ability to compete in new and growing markets. Same for Facebook + Instagram, where Facebook paid $1 billion in 2012 for Instagram, and today it’s worth $50 billion or more.

Amazon gets immediate and relatively large exposure to one of the largest parts of the retail industry – groceries. And with the buyout of Whole Foods, Amazon becomes the fourth-largest grocer in the U.S. Given Amazon’s operational know-how and ability to cut prices, Amazon will surely be able to take market share from the conventional grocers – but the big question is; how long will that take? There may be value in the fact that the market has over-discounted the likes of Kroger and Costco, assuming Amazon will ‘kill’ those businesses overnight.

Link to the rest at Seeking Alpha

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