Whole Foods under Amazon: What`s the Way Forward?

Abstract:

The case discusses the acquisition of leading US-based natural and organic grocer Whole Foods Market, Inc.(Whole Foods) by Seattle-based e-commerce giant Amazon.com Inc. (Amazon) and whether the combined entity can disrupt the US grocery market. Since the beginning of 2016, Whole Foods had been facing problems due to declining sales, growing competition, and increasingly price-conscious consumers. In February 2017, Whole Foods, which had reported a sales decline at its stores for seven consecutive quarters (4Q 2015-1Q 2017), came under pressure from activist investor Jana Partners LLC to consider putting itself up for sale. On June 16, 2017, Amazon acquired Whole Foods in a US$13.7 billion all-cash transaction. Post-acquisition, Whole Foods continued to operate stores under the Whole Foods Market brand with John Mackey (Mackey) remaining its CEO. Going forward, there were several challenges before Amazon’s CEO Jeff Bezos (Bezos) and Mackey – How to successfully unleash the value of the merger? How to reconcile the differences in the unique cultures and strategies of Whole Foods and Amazon? How to outgrow Whole Foods’ ‘Whole Paycheck’ image which was harming it, while at the same time maintain certain aspects of its distinctive practices that had helped it develop a loyal customer base?

Issues: » Understand the rationale behind the merger and its potential synergies and evaluate the benefits of the deal to Whole Foods and Amazon. » Evaluate the impact of the Amazon-Whole Foods deal on the US grocery market. » Understand the importance and challenges in post-merger integration. » Identify the issues and challenges emerging out of the merger and explore ways to overcome these challenges. Introduction Seattle-based e-commerce giant Amazon.com, Inc. (Amazon) took the global retail industry by surprise when it acquired natural and organic grocer Whole Foods Market, Inc.(Whole Foods) in a US$13.7 billion all-cash transaction on June 16, 2017. Post-acquisition, Whole Foods would continue to operate stores under the Whole Foods Market brand with John Mackey (Mackey) remaining its CEO. Following the announcement of the deal, the shares of some big box retailers in the US such as Wal-Mart, Target, Costco, and Kroger plummeted as investors were worried about the wide-reaching implications of the deal. According to some analysts, the deal would be a catalyst for change in the US grocery market as consumers would benefit from pricing and selection and competitors would be forced to cut prices in order to survive. As of 2016, Whole Foods accounted for 1.2% of the US food and grocery market share while Amazon’s market share was just about 1%...

Key words:
Merger and Acquisition,Post-merger integration,Brand dilution,Synergies,US Grocery Industry,Competitive advantage"

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