Any thoughts that Amazon 's (US:AMZN) reach across new sectors would one day slow were unceremoniously kicked into touch by the news of its acquisition of US grocery chain Whole Foods for around $13.7bn (£11bn). So, having decimated the booksellers, music CDs and DVD outlets, it looks as though Amazon's founder and chief executive Jeff Bezos has pressed the start button for entering the supermarket sector.
For Amazon, the initial bonus is the acquisition of a string of quality outlets in affluent locations. The timing is perfect because the Whole Foods business model - organic and expensive food - was preventing it reaching a bigger market share, and in order to do so, it launched Whole Foods 365, effectively offering a cheaper price range. The point here is that with Amazon's lower cost supply chain, Whole Foods could find itself in the position of undercutting some of the really big operators such as Costco, Target and Wal-Mart. Shares in these US-listed companies dipped on news of the deal.
It also provides Amazon with a network of distribution sites. It already offers same day delivery in nine markets, and Whole Foods' network of outlets will bring Amazon's distribution network even closer to its core customer base. The network will also be used as a warehouse, returns location and a pick-up spot for other Amazon products. In short, Amazon has put real scale into its ability to provide 'last mile' delivery.
However, it's still early days. While Amazon has 43 per cent of online sales in the US, the Whole Foods acquisition will give it just 1.2 per cent of the US grocery market, according to consultancy GlobalData. And against Wal-Marts' 4,700 stores, Whole Foods has 460. This could turn into a battle royale between an online trader buying into the bricks and mortar of the grocery market and an established retailer who has recently acquired a string of online brands. And with Aldi and Lidl joining the battle to undercut existing grocery chains, the only near-term winner might be the customer, as the competition becomes even more cut-throat.
