The big news on Wall Street is Amazon’s purchase of Whole Foods. As a portfolio manager for Nia Global Solutions, where access to healthy, organic, and sustainably farmed foods is one of our six investment themes, I recognize this announcement is a big event for our industry. We are hearing lots of talk about what this acquisition means for other large grocery stocks (prices of Walmart, Target and Costco-our largest grocery business stocks-all fell Friday with the news). Meanwhile, as Brad Stone reported in Bloomberg, “Amazon’s market capitalization increased by more than $30 billion-more than double the amount it is paying [for Whole Foods].
This purchase signals big changes on the horizon for grocery shopping as we know it. While many consumers do prefer to pick out their own produce, the potential for convenience offered by home delivery innovations will be life-changing for many. This acquisition is significant in that it marks the entry of a strong, can-do digital strategy into retail grocery shopping. Amazon will now be able to compete with online sellers like Thrive Market (currently privately held) which offers healthy, organic product delivery at a discount. With 431 new retail outlets, Amazon will now be able to expand its offerings for one hour prime delivery, making fresh food options readily available. Just as we were all getting accustomed to bringing our own reusable bags to the market, the arrival of yet more cardboard to our doorsteps is a strong probability.
This purchase will indeed shake up the grocery industry. Companies offering healthy and organic food products (such as Dannon or WhiteWave Foods) that are sold or distributed by others will do fine. However, traditional brick and mortar stores and chains (like Natural Grocers) will need to watch their bottom line. Amazon is likely to change the very nature of the way we shop, accessing groceries with a mouse click in place of an actual trip to the store. Other go-to grocery stores that rely on physical locations will have a difficult time competing. They will either be scooped up by Amazon, or perhaps purchased by other strategies (like Good Eggs) who have mastered the online home delivery process. Many stand to lose customers and market share as consumers move toward convenient delivery options.
While stock prices for companies within these sectors will be interesting to watch, I am also aware of the significance of this disruption for our local economies and communities. There are certainly innovative, perhaps positive upsides to this expansion, and yet, there are also significant and far-reaching consequences that will affect our local communities. The ramifications are many; some economic, others social. While an Amazon-Whole Foods combo has the potential to provide more convenience than ever before, our local independent retailers and small businesses stand to lose. As more and more people shop for and find what they need online, we reduce both our daily interactions with local vendors, as well as the amount of money we spend locally, in our local economies.
If we begin purchasing all of our food online, we not only threaten the livelihood of our local independent businesses-stores owned by real people in our communities- we also threaten the character of our neighborhoods as our public streets become more mechanized arteries through which Amazon delivers everything to everyone. Local grocery stores (as well as bookstores) have long been cornerstone institutions within local communities-and they are now more vulnerable than ever. As Jeff Bezos, the second-wealthiest man in the world, takes over the grocery business, we can speculate that Amazon’s aim is to maximize its own profits, rather than to look out for the wellbeing of our local economies and communities. This all depends on consumer behavior shifting, of course, and for now we still have choices in where we shop.
While Whole Foods may have been known as “whole paycheck,” Amazon is positioning itself to take our entire wallet-share. It’s now up to consumers to consider the impacts of where and how we shop — for ourselves and our local communities.
This blog is intended as a commentary on the retail industry and on the nature of how we purchase food, and is not intended as investment advice.
Originally published at https://www.linkedin.com on June 19, 2017.