On 16 June, the news was announced that Amazon and Whole Foods had agreed to a take-over deal and the internet giant paid 13.7 billion dollar for the organic supermarket chain. However, it’s not the first time an online giant has taken the step into a physical shop. Last year, Alibaba opened several shops in China. By now, all corners of the supermarket world are giving out warnings.
The take-over of Whole Foods by Amazon is preceded by a long history. Under the influence of the price war in American retail, the share price had been under pressure for some time. In April, venture capitalist Barry Rosenstein joined Whole Foods and bought about eight per cent of the shares with his investment office Jana. He immediately demanded changes within Whole Foods. The share price shot up, because investors know that when Rosenstein invests in a company, a take-over is likely. They didn’t have to wait long.
Seven candidates
In the meantime, the management of Whole Foods was anything but happy with the new shareholder. John Mackay, founder of the supermarket chain and senior executive, blamed the venture capitalist. ‘Greedy bastard’ and someone who ‘kicks below the belt’ are some of things said by Mackay. A few days after Jana invested in Whole Foods, the supermarket chain received two letters in which companies, not mentioned by name, made a take-over bid.
The management decided to approach Amazon that same week, because there were rumours that the internet giant had considered making a bid for Whole Foods in the past. Even before a meeting was planned, four more letters from investment funds proposing take-overs were received by Whole Foods. In total, seven parties were interested in the organic supermarket chain. In the end, Amazon made a bid of 41 dollar per share, on the condition that the company could withdraw the bid as soon as there were any leaks at all about the deal, and no negotiations would be held with other bidders. Whole Foods managed to raise the price to 42 dollar per share, but were also told: ‘take it or leave it.’
Whole Foods accepted the bid. The take-over was officially announced on 16 June. There were some rumours that a battle for the supermarket would break out. The share price rose to more than Amazon’s bid. Considering the agreement with Amazon, it was already decided that no take-over battle would break out. The fact that an online shop invested in the ‘old’ physical channel caused shock waves. Various scenarios were worked out for the supermarket sector as a whole.
Revolution in retail?
Economist Mathijs Bouman wrote in his column in the Dutch newspaper Financieel Dagblad: “In the US Amazon buys supermarket chain Whole Foods Market, or would like to at least. The new economy preys on the old one. In the Netherlands, Ahold bought bol.com. The old economy buys the new one. Is this a bad omen? I’m afraid so.” He indicates the dominance of American companies in the online world. And in his vision, bol.com should have taken over Ahold, and not the other way around.
Laurens Sloot of EFMI Business School placed a passionate call to Superunie members on social media. “I’ve been thinking about it for a while, but now that Amazon has definitively aimed its arrows on food, I think it’s about time to put the cat among the pigeons. Why is every SU member trying to invent the wheel for themselves?” He is pleading for cooperation among members to be successful online. “Work together from your strengths, now you still can. Independence is great, but solidarity is more important now!”
In the Dutch newspaper Telegraaf, Robert Schuckink Kool, columnist and investor, also writes about the take-over: “Food retail will be the next sector for which the cards will be dealt again by online shopping. (…) The underlying thought is that if Amazon enters this market with its marketing and data power, physical food shop chains will have to be careful.” He predicts a new era in retail. “An era in which it’s not so much about very low margins on bulk food goods, but an era in which big data, online shopping and high margins on healthy food are coupled together in an innovative manner.”
Alibaba preceded Amazon
That thought isn’t new, and Amazon is definitely not the first to make the step from online to offline. In China, internet giant Alibaba preceded them. Jack Ma, founder of the Alibaba Group, presented his concept called ‘new retail’ in January last year. This concept is “the integration of online, offline, logistics and data by one value supply chain.” From that thought, physical shops have been opened, and Alibaba bought major supermarket chain Intime Retail. Earlier this year, Alibaba announced they were going to cooperate with Bailian Group, the state supermarket.
During a presentation in Davos, Alibaba’s CEO Daniel Zhang also talked about the new strategy: “We cannot see online and offline separately from each other.” He indicated that even when people walk through a shop, they are online through their smartphones. Within the ‘new retail’ concept, data is used to improve customers’ experiences. Online and offline go hand-in-hand for that. A different term for this phenomenon is cross-channel retail. The link from online to offline can also be seen in other sectors. White goods shop Coolblue opened shops in five cities, and fietswinkel.nl also has several dozens of branches by now.