Amazon purchase makes grocery wars hotter

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Following the announcement of Amazon's plan to purchase Whole Foods Market, Inc.

Whole Foods, a pioneer in organic products, as mentioned, started its business in 1978 in Austin, Texas, building its brand on healthy eating and fresh, local produce, though often with steep price points.

While analysts do not know for sure yet what the impact will be, stock prices today for Amazon and Whole Foods shot up Friday, while prices for traditional retailers like Walmart, Target, Kroger, and Cosco fell.

Amazon is already nearly dominating retail - the company's market share of the US retail sector a year ago was estimated at 34 percent, while Walmart came second with 5 percent, according to Needham & Company's research in April. Whole Foods, a pioneer in natural and organic products, has 456 stores, which young, high-end shoppers flock to.

Whole Foods Market will continue to operate stores under the Whole Foods Market brand. Whole Foods Market, which has more than 420 stores in more than 40 states in the US, soared more than 29.1 percent to $42.68. Amazon could integrate it with technological advancements to improve the shopping experience, and, in turn, help Whole Foods rein in revenue.

Meanwhile, in a letter to its customers, Whole Foods Market, Inc.

"If Amazon is going to sustain its current growth rate, it has to get into groceries", Smith said. Smith, the L2 consultant, said Amazon's technology and operational efficiency could improve Whole Foods' operating margins.

"The ramifications for all of retail are seismic - not just retailers that sell grocery, but for everyone", Gordon Haskett analyst Chuck Grom said.

Both Amazon and Whole Foods cater to younger consumers including millennials as well as the affluent.

Amazon's shares were up 3% at $994.45.

In May, they opened two test locations in Seattle, Washington, which give Amazon Prime subscribers the ability to place a grocery order online and then pick-up at a drive through window.

Some investors may be wondering if Amazon will disrupt grocery stores the way it upended the bookstore business.

When Amazon.com Inc. completes its acquisition of Whole Foods Market Inc., chief executive officer Jeff Bezos will try to keep the grocer's reputation for premium fresh foods while cutting prices to shed its "Whole Paycheck" image. The acquisition would add Whole Foods' 87,000 employees to Amazon's bulging payroll, which as of the end of the first quarter had 351,000 people.

Armed with giant warehouses, shopper data, the latest technology and almost endless funds - and now with Whole Foods' hundreds of physical stores - Amazon is set to reshape a US$800 billion grocery market that is already changing rapidly.

The deal is expected to close in the second half of 2017, pending shareholder and regulatory approvals.

One of the world's biggest online consumer goods companies is getting even bigger. Amazon lost $7 billion subsidising deliveries a year ago.

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