Whole Foods Vs Kroger Prices

Whole Foods Vs Kroger Prices – By buying Whole Foods, Amazon will not only disrupt the grocery shopping experience, but perhaps start a larger push that could change the entire retail landscape, leaving Walmart behind.

Toby has deep financial experience in investment banking, VC investing and PE. He recently founded and sold a VC-backed company.

Whole Foods Vs Kroger Prices

In just a few days, the retail world has been rocked by two major acquisition announcements by industry giants: Walmart and Amazon. The latter grabbed the lion’s share of the headlines, announcing the purchase of Whole Foods Market last Friday for a whopping $13.7 billion, making it the largest acquisition in company history (surpassing their $1.2 billion purchase of Zappos in 2009).

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As markets were still coming to terms with the news, Walmart quickly followed up with its announcement to buy Bonobos, a direct-to-consumer (DTC) men’s apparel retailer, for $310 million. As Fast Company noted, “The move threw into sharp relief how much [Amazon and Walmart] are competing for the American consumer, working to seamlessly integrate online and offline shopping experiences.”

As the dust settles, it seems clear that Amazon’s move will be far more significant, impactful and disruptive than Walmart’s. By buying Whole Foods, Amazon is likely to launch a radical disruption of U.S. retail, leaving Walmart to play defense.

The consensus is overwhelming that Amazon’s purchase of Whole Foods is a big deal. “Amazon’s purchase of Whole Foods is incredibly interesting, very strategic and definitely not standard,” said financial expert Josh Chapman. Recalling the Amazon Go introductory video (below) that appeared late last year, Chapman believes that “[it’s been] Amazon’s vision all along, and I believe it’s front and center in their vision for Whole Foods. Amazon Go will now become the technology that will flood every Whole Foods store across the country. I’ll be bold enough to say that Amazon’s acquisition of Whole Foods is the start of an incredible wave of innovation across grocery/shopping.”

The belief in Amazon’s capacity to revolutionize the grocery experience (on the tail of Amazon’s other recent foray into brick-and-mortar bookstores) is echoed by several others. Financial expert Sebastian Fainbrown, who is an investor and board member of Dolcezza Gelato, Whole Foods’ Mid-Atlantic distributor, envisions a radically different shopping experience: “Imagine going to Whole Foods for fruits, meats and vegetables, plus other interesting impulse buys, but also a bag of monthly automated items waiting for you at the checkout. Amazon has analytics as well as logistics. It will revolutionize shopping. For Whole Foods, they have prime real estate and can eventually use that space for things other than food. If I owned a retail store, I would be very worried unless I have such real estate. “Imagine the same model but in a mall with clothes and accessories.”

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Putting aside the potential to change the retail experience, both see implications that go much further. Chapman, a former Morgan Stanley investment banker-turned-entrepreneur with experience in the retail, real estate, energy and SaaS industries, believes that “after Whole Foods, Amazon will likely repeat this exact acquisition strategy by buying CVS, a major clothing retailer ( Macy’s), then perhaps a tech retailer (Best Buy). This shift will have a huge impact on the reallocation of jobs and will also create a wave of new technologies and applications that will be the ‘service providers’ for this new shopping experience.”

Fainbrown shares that Amazon’s tie-up with Whole Foods marks the beginning of a larger shift toward brick-and-mortar retail: “If this works out, Amazon will end up buying a retailer like Nordstrom.” It’s about optimizing the retail space with the right items and experience and delivery and automation capabilities for the rest.”

The widespread potential implications for grocery and the larger retail space may explain why so many retailer stocks took a big hit on the news (Chart 1). Financial expert Neil Bhargava, whose experience in private equity and management consulting has focused specifically on retail companies, points out: “Whole Foods is a major category leader that allows Amazon to enter the commercial space in one fell swoop, and they can support a lot of other things . Because of this, the prices of other food stocks were affected. “It will be very difficult to compete.”

However, some are a little more cautious in drawing conclusions. Financial expert Ethan Bohbot, an investment banking and hedge fund analyst-turned-entrepreneur, says: “I think the initial drop in retail stock prices is an overreaction and it remains to be seen whether this big move is warranted – Amazon has long been trying to break into retail and basically admitted that they needed help buying Whole Foods, so their success doesn’t seem like a guarantee. The market already seems to be assuming that Amazon will significantly disrupt the market and take a big chunk of the stock, when the scenario that the impact is only gradual is not unreasonable, especially in the near term. At the same time, if things had gone well for Amazon, we could look back and say it was an underreaction, but just given the uncertainty, I think the size of the move was too big (not the direction – this is certainly competitive threat ).”

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Looking back on Walmart’s purchase of Bonobos, most agree that the acquisition is more of an addition than a game changer. Chapman says, “Walmart’s acquisition of Bonobos only makes sense because it’s an extension of Walmart’s apparel portfolio. This acquisition seems a lot more standard, cookie-cutter, and kind of “boring,” frankly. The Bonobos brand will likely remain the same, hopefully without sacrificing quality (who knows), but will now be heavily integrated into the Walmart ecosystem.

Finebrown agrees: “It’s more like a hedge. It’s like McDonald’s buying Chipotle. Investing in a new learning model. Amazon/Whole Foods needs to completely change the model or take it to the next level – total sales channel/analytics/logistics optimization.”

Elaborating on the strategic rationale behind the deal, Bohbot states, “This looks like a screw-up for their e-commerce business. I understand the strategic reason for acquiring talent from a successful online retailer, but they’ve made several similar (and larger) acquisitions in the past that would seemingly accomplish the same goal (Jet.com, ModCloth, etc.), so I’m not sure the added benefit will be as big as Amazon/Whole Foods.”

Perhaps an underrated — and certainly underreported — component of the Walmart/Bonobos deal concerns the margin. To this, financial expert Taifun Uslu points out that “it is important to note that Bonobos is a vertically integrated company and that as a company that is both a brand and a distributor of its products, this means very high gross profit margins that cannot be easily achieved.” from customers and resellers or marketplaces (ie Whole Foods and Amazon). Whole Foods has some private label, but accounts for about 15% of revenue. Walmart is pushing a strategy of buying vertically integrated companies because, ultimately, they have higher gross profit margins.

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Whatever we think of Walmart’s strategy to dive into e-commerce through fashion, it’s clear that the general trend in this space is moving toward DTC. Established brands are steadily increasing their share of sales from this channel as opposed to traditional retail channels (Chart 2). Building a strong online presence in fashion in many ways requires a strong positioning in DTC, something that shines through in Walmart’s recent acquisitions in the space.

Compared to Amazon’s recent move, from a margin perspective, Walmart’s strategy certainly looks more proactive. Bohbot sums it up this way: “This specific transaction for Walmart is negligible, and given the stage/scale, may not even impact Walmart’s margin, but the overall goal is to strengthen the e-commerce business, which in theory will have higher margins and provide elevating the overall company as the mix continues to shift toward e-commerce.

Bohbot continues, “For Amazon, buying Whole Foods is a different story – standard channels are lower margin than network channels with higher fixed and variable costs, so by increasing the brick-and-mortar mix, Amazon is seemingly diluting their margins. Additionally, in the retail sector, grocery has a fairly weak margin profile, so increasing the grocery revenue mix will prove to be further dilutive.

Lower grocery margins were something Jeff Bezos himself pointed out earlier this year. Taking to Twitter to respond to a NY Post article claiming that Amazon Go has an operating profit of more than 20% and can operate with just three workers, Amazon’s CEO said the following:

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But Bohbot doesn’t seem to care about this last thing. Besides the fact – as the Wall Street Journal points out – “Whole Foods […] operates with much higher profit margins than other food products, thanks in part to the higher margins it receives on many of its premium items” (Chart 3). Bohbot believes that “I

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