Sector News

Amazon-Whole Foods deal could shake up grocery industry

June 19, 2017
Food & Drink

News on Friday that Amazon.com Inc. planned to buy struggling organic food retailer Whole Foods Market Inc. sent shockwaves through the grocery industry, including in West Michigan.

Shares of Byron Center-based grocery retailer and distributor SpartanNash Co. (Nasdaq: SPTN) fell on word of the $13.7 billion cash deal that would bring together two companies that revolutionized the grocery and retailing industries.

The share price of SpartanNash fell as much as 9 percent from Thursday’s close before rallying slightly to $27.20 at the bell on Friday, down 5.7 percent in heavier than average trading. Likewise, most other publicly-traded grocery retailers saw their share prices drop.

However, local food marketing and retailing experts tell MiBiz that early stock market reactions are not necessarily the best indicators of long-term challenges.

“In all reality, I think the stock market is reacting by dumping anyone that’s not Amazon or Whole Foods,” said Dr. Marcel Zondag, an associate professor of marketing at Western Michigan University.

Zondag added that SpartanNash and Walker-based Meijer Inc. in recent years have been diversifying their types of stores, as well how they get products to consumers.

Indeed, both SpartanNash and Meijer have increasingly turned toward e-commerce strategies that allow shoppers to place an order online and pick up groceries and other products at a store. Meijer also began a wide-scale rolloiut of a home delivery service through a partnership with mobile application Shipt Inc., as MiBiz previously reported.

Additionally, SpartanNash last year detailed to brokerage analysts that it had struck a distribution partnership with Amazon.

“You don’t have to be hyperbolic, but (the Amazon-Whole Foods deal) does underline that you better get going,” Zondag said of the attempts by companies like Meijer and SpartanNash to diversify their distribution channels. “The market isn’t going away. I think the disruption has already started.”

According to various reports, the move by Amazon to deepen its ties in the grocery industry served as cause for concern among investors in other food suppliers, particularly because of the downward pricing pressure the online giant could have on the sector.

Whole Foods currently operates seven stores in Michigan, all located in metro Detroit, Ann Arbor and East Lansing.

While it’s unclear just how Amazon’s ownership might affect future brick-and-mortar expansions for Whole Foods, local commercial real estate brokers say the organic retailer has expressed interest in the West Michigan area in recent months.

“They’re open (to West Michigan), but they haven’t found a location,” said Mark Ansara, an associate vice president at Colliers International Inc. in Grand Rapids.

Ansara’s book of business focuses on retail at the commercial brokerage firm.

“In the retail world, we’re shocked that they’re not even here yet,” Ansara said, adding that he’s in semi-frequent contact with brokers representing the grocer.

According to Ansara, Whole Foods is known for being specific about where its stores are located. Additionally, the company’s financial performance in recent years may have hindered its expansion plans, he said.

It remains largely unclear how Whole Foods may operate under Amazon, a company run by billionaire Jeff Bezos, who has stated publicly that he wants to deliver goods to consumers via drone.

To local experts, the type of capital and opportunities that Amazon might bring to a brand such as Whole Foods only reinforces the need for smaller companies like Meijer and SpartanNash to continue to innovate their strategies.

“It’s a dose of reality,” WMU’s Zondag said. “We have to wait and see the strategy Amazon will employ.”

Executives at Meijer and SpartanNash did not respond to requests for comment as this report was published.

By Nick Manes

Source: MiBiz

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