- When Amazon bought Whole Foods for $13.7 billion in mid-June, the e-commerce vendor carefully analyzed the grocer's distribution methods in advance, leading some to speculate that initial cost reductions will likely occur there, Bloomberg reported reported Monday.
- Creating an advanced distribution capability will likely be one of Amazon's top goals. This improvement could give Amazon the edge it seeks over Walmart and other grocers like Kroger and Aldi.
- Whole Foods will also benefit much from the merger: as the company seeks to cut operating expenses and better serve a "digitally savvy" consumer base, merging with Amazon provides the company with the tools necessary to meet goals.
Although high prices have consistently contributed to Whole Foods' reputation as the grocer most likely to empty your wallet, it's likely that Amazon will want to lower operating costs, which is in line with Whole Foods' mission, according to the company's recent statements and financials.
Whole Foods previously stated it was “on track to realize $300 million expense reduction goal ahead of schedule,” according to its May 2017 Shareholder Presentation, “growing online presence with annualized digital sales approaching $400 million in CY 2017.”
The company also listed “digital sales” and “category management" as key growth drivers, and stated that by 2020, the company hopes to garner $300 million in cost savings by optimizing its supply chain, reducing labor, shrink and inventory levels.
According to Whole Foods' 2016 income statement, the company's operating expenses increased by 9.7% since 2014, and the company's net income dropped by 12.4%.
Because the company is hoping to streamline its supply chain and reduce operating expenses, the merger with Amazon puts Whole Foods in an optimal position: Amazon is known for its low consumer prices, sleek supply chain and logistics. By merging with Amazon, Whole Foods' online presence will likely grow, inventory levels will likely adjust to meet demand and prices will drop. Whole Foods now has a much better chance of meeting its goals, and also increasing profit margins.
As Whole Foods mentioned in its shareholder presentation, the company serves a niche market of middle-class individuals who want organic, fresh food and are "digitally savvy." If Whole Foods products become available on Amazon.com at discounted prices for quick delivery, then this merger will be a very competitive force to be reckoned with: not only will this challenge other food producers like Kellogg, Kraft, and Kroger, but it also might provide an edge to the competition with discount German grocers Aldi and Lidl.