“Amazon’s acquisition of Whole Foods was very unexpected. With the impact of the announcement alone, Amazon grew by 2.4%, nearly the equivalent of the $13.7 billion purchase price,” commented Gloria Batllori, Lecturer of Finance at ESADE, at “Was this the heralded ‘retail revolution’?”, a discussion session organised by ESADE Alumni. Ms. Batllori added: “Three months later, the estimated figures published at the time of the acquisition have already been exceeded. Amazon will be able to access many more customers than we expected as recently as June.” According to Ms. Batllori, this growth in Amazon’s clientele is due to “actions” such as “slashing the prices of Whole Foods products by 20% to 30%”. Amazon’s value is now “underrated by analysts”, she argued. “Amazon had a turnover of $1 billion in 2000 and is expected to earn $200 billion in 2018.”

New balance between brick-and-mortar stores and e-commerce

Jaume Hugas, Associate Professor in the Department of Operations, Innovation and Data Sciences at ESADE, commented: “Amazon, the king of e-commerce, has been forced to buy stores, after having tried, unsuccessfully, to create its own. Meanwhile, Walmart – Amazon’s main competitor and the leader in traditional logistics – closed 269 stores in 2016 in order to invest in e-commerce, for example by purchasing Jet.com. The question now, in each case, is what percentage will remain in e-commerce and what percentage will go to stores.” He added: “Whole Foods has 443 locations in the United States, which is very few compared to Walmart’s nearly 5,000 stores throughout the country.” According to Prof. Hugas, from Amazon’s point of view, one of the major benefits of the buyout is the 20 million Whole Foods customers who are not Amazon Prime subscribers. “Amazon hopes to get at least 5 million new Prime subscribers out of this transaction,” explained Prof. Hugas. “The acquisition of these supermarkets will allow Amazon to expand its network of pickup points.”

The new on/off paradigm

In the opinion of Lluís Martínez-Ribes, Associate Professor in the Department of Marketing at ESADE, the buyout was “clearly an on/off transaction” in the sense that Whole Foods and Amazon are “tapping into complementary competencies”. He argued: “The online concept, as such, no longer exists. Ever since we started using smartphones, we have become on/off people.” He added: “If stores offer a hypersensorial experience, they can coexist with the Internet without any trouble at all.” With this buyout, Prof. Martínez-Ribes argued, “Amazon is entering the most difficult part of the distribution chain: fresh and organic products” and, moreover, does so in a way that breaks the paradigm: “Are organic products for rich people? Amazon has turned that notion on its head.”

In conclusion, the three ESADE faculty members predicted that Amazon will continue to grow and will likely carry out similar buyouts in other markets. Ms. Batllori observed: “Amazon has always changed the rules of the game. We shouldn’t expect it to grow the way traditional companies do.” Prof. Hugas noted that Amazon is, at present, head and shoulders above its competitors. “Its current market value is higher than that of all its competitors combined,” he concluded.