Watch Out, Kroger Co, Amazon.com, Inc. And Whole Foods Are Coming

The clamor about the Amazon and Whole Foods tie-up has quieted down now that the transaction has closed, but the story continues as analysts look at how the two will complement each other. It may seem strange that an e-commerce giant that operates on razor-thin margins would acquire a high-end grocery store operator that specializes in organic food.

Amazon and whole foods

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However, the Amazon and Whole Foods merger looks like an early signal of what’s becoming a trend among brick-and-mortar chains. In fact, investors are so convinced that the combination have short-sellers scrambling to borrow shares of Kroger, and the market looks poised for a face-off between Amazon and Walmart.

Amazon and Whole Foods to boost Prime subs

Amazon kicked off its first day as the high-end grocery store chain’s new owner by slashing its prices earlier this month. Data from Foursquare indicated that foot traffic at Whole Foods stores increased by as much as 25% after the price cuts. It remains to be seen whether this uptick will be sustained, but analysts generally expect both Amazon and Whole Foods to benefit from the merger.

For example, Morgan Stanley analyst Brian Nowak said in a note late last week that he projects a compound annual growth rate of 12% for Whole Foods alone between this year and 2022, assuming a 3% share of the U.S. grocery market. He believes the grocery store chain’s growth will come from growth in new shoppers due to more competitive pricing and greater convenience. He cited his firm’s AlphaWise data, which revealed that only 13 million households shopped at Whole Foods before the merger, and those that didn’t said price was the biggest barrier.

Nowak expects the Amazon and Whole Foods combination to also result in growth for Amazon Prime as more members shop at Whole Foods and new Prime-only promotions at Whole Foods convince more shoppers to sign up.

Brick-and-mortar chains join Amazon since they can’t beat it

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