Amazon just bought Whole Foods and sent shares of its grocery competitors off the cliff.
Now that Whole Foods is looking like it will be part of a larger corporation, short term profitability is less of a concern, according to Michael Lasser, an analyst at UBS. This will free the grocer to invest more heavily into increasing same-store sales, a weakness for the company in recent earnings reports. Amazon could help the store cut prices, which is bad news for its competitors.
What does this mean for the future of your local grocery store? If you are to believe Lasser, it depends entirely on the business model of your grocer.
Amazon’s shares were climbing based on the news Friday. The stock is up nearly 3.5% in midday trading Friday and 32.4% this year.
Both stocks were hit hard in the wake of the announcement. But the chains serve entirely different markets to Whole Foods, which means that while the stocks are down temporarily, the companies will probably survive, Lasser said.
For a lot of impoverished areas, these dollar stores often serve as the only place to buy food locally. These areas are often called “food deserts,” and Dollar General and Dollar Tree are some of the only companies investing in those areas.
Costco was also down following the Whole Foods announcement. The two grocers both have a warehouse feel to them but have very different business models. Lasser points out that Costco has invested heavily in areas Whole Foods is not known for.
“[Costco’s] limited assortment, low cost structure, and deep private label penetration probably means that its fortunes will be preserved, at least for the foreseeable future,” Lasser wrote in a note to clients.
Walmart has been trying to cut into Amazon’s online retail business recently. The company acquired Jet.com, ModCloth, MooseJaw and ShoeBuy. On the same morning of the Whole Foods announcement, Walmart announced it would be acquiring Bonobos, adding to its premium online businesses.
Because Walmart is approaching its online business in a similar way to Amazon, it’s probably going to feel the Whole Foods acquisition a bit harder than other competitors.
Target is another company that could be in trouble, according to Lasser. Target has been trying to reach more customers through their “better-for-you” food offerings, according to Lasser. The strategy is now in direct competition with Whole Foods and Amazon.
The last company Lasser points out is Sprouts Farmers Market. The company is down 5.3% after the acquisition announcement. Sprouts currently partners with Amazon’s Prime Now delivery service. Now that Amazon owns its own grocery story, the partnership will likely become complicated, according to Lasser.
More Info: markets.businessinsider.com