Amazon-Whole Foods merger raises questions for small food manufacturers

The chief market strategist at a $1.3 trillion investment firm breaks down Amazon's'disruptive Whole Foods dealMore

They do services of various sorts, but it is unsettling, isn't it, to think of one huge company.

If you haven't heard by now, Amazon just bought Whole Foods for a whopping $13.7 billion dollars. "The combination has generated some outsized coverage".

The acquisition is the second-largest USA grocery deal on record, according to Elizabeth Lim, senior analyst for Mergermarket. While the market in general wasn't fazed by this news, many grocers and other retailers were. Publix is expanding as well.

Amazon offers a variety of private brands, including Happy Belly.

But the most important result of the Whole Foods merger may be to "humanize" Amazon at the flesh-and-blood level, not overnight but over the long term, creating a customer-centric (especially among urban Millennials and Gen Zers) in-store experience that's less about automation and more about transitioning Amazon from foremost online retailer to foremost retailer, groceries and all.

This capacity is evident in their concept for how brick-and-mortar retail stores should work, Amazon Go.

"This partnership's gonna change the world", the Whole Foods CEO told employees June 16, according to a Securities and Exchange Commission filing. It will likely cancel that contract and switch to Amazon's delivery network, forcing Instacart to look elsewhere, such as Publix, to make up for lost sales. Food retailing was once more of a distraction for Amazon: their online grocery business, AmazonFresh, is only available in a handful of cities. "I see Amazon bringing a lot of that service in house - they can already provide a lot of that through many of their Prime services". "Publix will want to be in the 2020s as soon as possible".

The news that Amazon would make clothes shopping even easier is a blow to America's apparel chains, many of which are already in the middle of that excruciating decline.

Meg Barnhart, who sells spices for slow cooking through both Amazon and Whole Foods, believes there's enough demand for natural or organic products that Whole Foods will continue to seek out ones that are unique.

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Amazon did not immediately respond to a CNBC request for comment. Kroger's stock lost 30 percent of its value in two days. "If you survive your market share goes up because the old and weak are buried".

"This will only accelerate the trend of low-wage employers like Amazon increasing their market share and profits by destroying good jobs (and their competition) in a race to the bottom that will leave workers with fewer jobs and lower wages while leaving consumers with fewer options and less choice in where to shop", stated Appelbaum. They also said a bidding war could distract Wal-Mart from its own strategic effort to get better at beating Amazon at its own game: e-commerce. Beginning with books and spreading to consumer electronics, Amazon has a reputation for disrupting existing markets.

"We know that no matter what type of product shoppers are buying, price is always the number one factor", Smith said.

Livingston also cautioned against a simple correlation between current stock prices and the new Publix stock valuation.

"You start by controlling the distribution, now you're in a position that you can control who's invited to the party and who's not", said Thomson, now a partner at consulting firm Buy Box Experts.

HFactor is also sold on Amazon and doing well, says Levy, who's based in NY.

TARRANT: As an industry, I mean they're 10 years behind at least.

Smaller, regional chains would be more attractive acquisition targets, he added. If you divide Amazon's total sales into these figures, it accounts for 36% of 2016 e-commerce sales and 34% of first-quarter sales.

"There has been no best-in-class grocer or retailer that doesn't have a best-in-class supply chain and fulfillment operation", said Goor in an interview with Retail TouchPoints. "They have had the courage that nearly no other public company has had the courage to, basically, resist the drumbeat of short-term, quarterly earnings that have had us trapped here for a couple of years, as our same-store sales - came down". But they still need to strive for improvement. In other words, room for growth is very limited in the market. "That plan has worked out quite nicely for Publix in the past".

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