Lidl, Aldi and now Amazon-owned Whole Foods will challenge Wal-Mart and Kroger

by Kim Souza ([email protected]) 1,519 views 

Amazon’s acquisition of Whole Foods will certainly challenge grocers like Wal-Mart, Kroger and others to hold or grow market share while maintaining profitable margins. But most market watchers don’t see the Whole Foods deal being a near-term threat to Wal-Mart Stores – especially with Wal-Mart aggressively acquiring specialty retailers that seek to challenge Amazon’s online dominance.

To that point, Wal-Mart announced Friday (June 16) it is acquiring Bonobos – a men’s high-end online apparel seller – in a $310 million deal. Seattle-based Amazon announced Friday it would buy Whole Foods Market for $42 per share in an all-cash transaction valued at approximately $13.7 billion, including Whole Foods Market’s net debt.

The Amazon deal dominated the news cycle on Friday. Retail analyst Jan Kniffen of J Rogers Kniffen Worldwide sees the Amazon move as perhaps the biggest disruption the grocery market has seen since Wal-Mart entered the space 30 years ago. He said Amazon has been tiptoeing in brick and mortar by testing small format stores but they don’t have to test any longer because they now have a scaleable grocery business.

“It’s just one more sector that Amazon is going to disrupt,” Kniffen said Friday on CNBC.

A key advantage Wal-Mart has had over Amazon in the grocery space was scale at brick and mortar. This deal gives Amazon scale and the ability to play the value end and higher-end of the grocery spectrum.

Carol Spieckerman, CEO of Spieckerman Retail, told Talk Business & Politics the Amazon/Whole Foods deal is the one to watch because it may crack the code on next-generation, multi-channel grocery retail. She wonders if Amazon will parlay Prime benefits into brick and mortar. She also wondered if Amazon’s non-grocery products, including those offered by third-party sellers, will be available for pick-up at a Whole Foods store.

“Buying an existing brick and mortar retailer will allow Amazon to move quite fast on these and other opportunities,” she said.


Keith Anderson, senior vice president of strategy at Profitero, doesn’t see any near-term threat for Wal-Mart from the Amazon deal. Longer term, Anderson said, the possibilities for Amazon to disrupt in grocery are very real. He said Whole Foods’ store footprint is considerably smaller than Wal-Mart or Kroger. Also, 7% of Whole Foods stores are located in 15 states in urban cities with higher-than average median incomes. He said Kroger has more stores in the neighborhoods than Wal-Mart.

More importantly, he said, Amazon is getting an established perishable food business and a beloved brand in Whole Foods. He said the possibilities are interesting for pairing Whole Foods with Prime Memberships.

Another interesting aspect he sees in the deal includes Whole Foods’ stake in Instacart, which will be part of the Amazon acquisition. He said Instacart serves many other grocers in second tier cities where Amazon doesn’t play.

“This muddies the water for Instacart and the other grocers. Will Amazon sell that stake in Instacart? That remains to be seen. They don’t really need it, but it would give them grocery distribution in second- and third-tier cities that they don’t have otherwise,” Anderson said. “Amazon has a deeper appreciation for the role the stores can play today and you can imagine all kind of possibilities from rapid deployment of Amazon Go in Whole Foods to Whole Foods re-platforming its click and collect program using Amazon’s system.”

Anderson predicted Kroger will remain competitive because they have a successful grocery chain and have defended their turf the past three decades, even against Wal-Mart. Anderson said while the Amazon grocery threat is real for the two retailers, they can’t ignore the disruption Aldi and Lidl will have on the low end of the spectrum. He said that threat is just as big if not bigger than Amazon’s move on Whole Foods.

Edward Yruma, an analyst with Keybanc Capital, said the Amazon deal is a bold move, and concerns Wall Street had about Amazon in brick and mortar are now dissipating. He said it’s clear the battleground between Amazon and Wal-Mart will be offline as well as online.

Spieckerman said the Whole Foods and Bonobos deals show that retailers believe “multi-channel” retail is a winning strategy.

“Amazon’s acquisition of Whole Foods is a game-changer on so many levels and the simultaneous timing of Wal-Mart’s deal with Bonobos is fascinating. The two deals have a few things in common. First of all, retailers’ mindshift is that true scale is no longer achieved in a single channel and it is accelerated through acquisition. Secondly, we are entering a new period of portfolio-building in which retailers will acquire ‘brands – be they apparel brands or brick and mortar – and bolt them on as separate-but-synergistic holdings rather than fusing them into the main entity,” Spieckerman said.

Oliver Chen, analyst at Cowen & Co., said Bonobos offers a brand-loyal customer base, premium price points, fresh merchandising talent and expertise in a differentiated niche of fashion. Bonobos gives Wal-Mart an opportunity to enter a high-margin specialty category and help it better compete with Amazon in the apparel setting.

Anderson told Talk Business & Politics the pattern is getting clearer that Wal-Mart is after higher end brands serving urban shoppers which is a widely underserved market by Wal-Mart. He said managing the growing portfolio of online retailers will be cumbersome unless some operations are merged. He said Wal-Mart has to be careful to not alienate shoppers of the high-end retailers and still find a way to gain insights from them.