Amazon is doing brick-and-mortar as well as groceries in a big way with a $13.7 billion acquisition of Whole Foods Market.
The transaction, announced Friday, transforms Amazon in many ways and gives Whole Foods, which has struggled in recent years due to price competition, more scale to compete.
Amazon will pay $42-a-share cash for Whole Foods in its largest acquisition to date.
Amazon CEO Jeff Bezos said Whole Foods will continue to operate stores under its brand. John Mackey will also remain CEO of Whole Foods. With the deal, Amazon will also get access to a lot of retail know-how. Whole Foods recently added a bevy of retail veterans to its board and management team. For instance, Whole Foods has Ken Hicks, former CEO of Foot Locker, Ron Shaich, CEO of Panera, and Sharon McCollam, former CFO of Best Buy, on its board.
The deal is expected to close in the second half.
While on the surface Amazon and Whole Foods sounds like a quirky merger, the combination satisfies a few mutual needs. Consider:
Amazon has been experimenting with bricks-and-mortar stores and just acquired a company with a nationwide footprint to try out new things.
Prime customers now have physical access points. Whole Foods could carve out space for Amazon pickup and delivery of packages.
Whole Foods gets Amazon's tech know-how and can move its infrastructure to AWS.
Amazon will be able to scale the technology it has been testing in stores like Amazon Go.
The data from Whole Foods will prove useful to Amazon as it melds bricks and clicks.
Groceries are a key part of Wal-Mart's business. Wal-Mart's ecommerce efforts are gaining traction and aimed directly at Amazon.
Whole Foods has been a work in progress on the tech front, but it has accomplished a few key goals amid executive turnover and new additions to the board of directors.
Notably, Whole Foods has refined its marketing plan, installed a unified point-of-sale system, and has an digital sales run rate of about $400 million. Here are some slides from Whole Foods most recent quarter, which highlight the grocer's brand and tech plans:
For 2020, Whole Foods was targeting more than $18 billion in revenue.
The Amazon deal will be notable in the digital transformation chronicles. Retail has been trying to compete with Amazon without much luck. Now that Amazon has become a physical retail player, the game will become more interesting.