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Amazon, the Death of Brick & Mortar, Buys into Brick & Mortar

Published: June 16, 2017
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Source: Wolf Street

Amazon, which is getting blamed profusely for the meltdown of brick-and-mortar stores and malls across the US, and which has been dabbling with its own initiatives into brick-and-mortar operations – including bookstores, after nearly wiping bookstores off the face of the US – said it would buy brick-and-mortar Whole Foods Market for $13.7 billion.

Amazon will get Whole Foods’s $15.7 billion in annual sales and more importantly, its brand, semi-loyal customers, and about 450 brick-and-mortar stores across 42 states. Whole Food shares jumped 27%.

But in early trading, the shares of the largest brick-and-mortar grocery sellers in the US are getting crushed:

  • Wal-Mart Stores -6.5%
  • Kroger, largest supermarket chain in the US, -14%
  • Costco -7%
  • Target -10%

Amazon already sells groceries online via AmazonFresh, and a few months ago announced it would create a grocery store pickup service, another foray into brick-and-mortar.

Selling groceries online has been tough in the US, though everyone has been trying, from innumerable startups to Safeway and Google Express (in cooperation with Costco et al.). Consumers are used to buying at the store by running through the aisles with their carts and choosing what they see or what’s on their list, or both, and they want to touch and check their produce before buying it, and they don’t want the dented apples or squished grapes or wilted lettuce. And they need it now on the way home from work so they can fix dinner.

With this acquisition, Amazon’s efforts to muscle its way into the grocery business and even more into the every-day lives of Americans have thus taken a quantum leap forward.

But what industry is Amazon muscling into? Over the past six years, sales at grocery stores are up a total of 14%, not adjusted for inflation, according to the retail trade report by the Commerce Department. Over the same period, the Consumer Price Index for food rose 14%, according to the Bureau of Labor Statistics. Hence, on an inflation-adjusted basis, “real” sales have been flat for six years.

 
 

 

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