Why Amazon’s Whole Foods Acquisition Makes Sense

Whole Foods has never been the cheapest option.

But for Amazon, its $13.7 billion buyout of the organic grocery store is already looking like a steal.

The short-term effects of the deal are already evident: With its 3 percent surge in early trading on Friday, Amazon added a swift $15 billion to its market cap. At the same time, its new competitors are nursing a stomach punch, with the grocery sector hit with an aggregate $29 billion drop in market cap.

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But this is more about the long game for Amazon. The e-commerce powerhouse wants to touch every aspect of your life, and this deal bolsters a lagging sector of its business.

Jeff Bezos and Co. have come a long way from selling books online in the late ’90s. Today it’s a tech, shipping, and entertainment kingpin. But grocery has been a challenge so far for Amazon, with it holding about 1 percent of the $800 billion global marketshare for food and beverage.

Whole Foods and its 450 worldwide stores won’t instantly push Amazon ahead of industry stalwarts like Walmart and Costco, but it’s the company best positioned to tackle “new retail” — a hybrid of brick-and-mortar stores and online shopping coined by Jack Ma, Alibaba’s head honcho.

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Now, Amazon gives its customers an option to buy grocery items and pick them up from a physical location, or buy heavy products in-person and have them delivered. And Amazon Fresh, its grocery delivery service, will receive a much needed shot in the arm. The synergy between the businesses is seamless.

At the same time, Amazon has mastered funneling customers back into its ecosystem. Ordering organic groceries from an established chain is now just a sentence away for Echo users. And with Amazon continuing to build out its drone delivery service, seeing bags of grass-fed beef and preservative-free blackberry spread flying through the air isn’t far off.

As Amazon puts endless retail shops out of business, its latest acquisition puts the rest of the grocery industry on notice. With a small army of reputable grocery stores now at its disposal, Amazon is now one step closer to having a hand in all of our purchases.