Online retailer Amazon.com said Friday it is buying the upscale grocery chain Whole Foods Market for $13.7 billion, a move expected to heat up competition in Charlotte’s already aggressive grocery-store industry.
The deal escalates Seattle-based Amazon’s push into the grocery business and ratchets up its rivalry with retail giant Wal-Mart Stores, which has been working to boost its online sales. Wal-Mart shares slumped Friday after the announcement, as did shares of grocer Kroger, the parent of Matthews-based Harris Teeter.
Amazon’s largest-ever deal is a boon to Austin, Texas-based Whole Foods, which has been struggling as competitors such as Publix and Harris Teeter increase their offerings of organic, gluten-free and other high-end products. Whole Foods has faced scrutiny for its higher food prices, as well as pressure from investors frustrated by its sluggish stock price.
“This is an earthquake rattling through the grocery sector as well as the retail world,” Bankrate.com analyst Mark Hamrick told the Observer in an email. “We can only imagine the technological innovation that Amazon will bring to the purchasing experience for the consumer.”
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Hamrick also said Amazon can be expected to bring more competitive pricing for Whole Foods customers.
Whole Foods operates three stores in the Charlotte area – in SouthPark, Huntersville and Waverly. The grocer has another store under construction uptown on Stonewall Street in uptown.
The company commands a relatively small portion of Charlotte’s increasingly competitive grocery industry by market share (1 percent), according to sales-tracking firm Chain Store Guide. Experts say competition tends to force companies to lower prices, an obvious plus for shoppers.
The deal raises questions about what Amazon has in store for the Charlotte region, where it is growing its workforce and where it has expanded services such as free same-day delivery for Prime account holders. An Amazon spokeswoman could not immediately be reached for comment.
Amazon has been quietly ramping up its presence in the Charlotte region over the years. The company began expanding its receiving center on Old Dowd Road last summer, for instance, and has been hiring at its has distribution center in Concord, where it already employs hundreds.
Amazon’s foray into brick-and-mortar grocery stores so far has been with its Amazon Fresh convenience stores that sell perishable goods like milk and meats, as well as canned items and other products with longer shelf lives. Amazon Fresh is not yet available in Charlotte.
In the deal, Whole Foods will continue to operate stores under its own brand, and CEO John Mackey will continue to run the company from its Austin headquarters.
“Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue,” Amazon CEO and founder Jeff Bezos said in a statement.
The deal is expected to close in the second half of the year, pending approval from Whole Foods shareholders and regulators. Whole Foods shareholders are set to receive $42 per share in the transaction, a 27 percent premium over Thursday’s closing price.
In trading Friday, Whole Foods shares closed up 29.1 percent to $42.68, while Amazon shares closed up 2.4 percent to $987.71.
The Amazon-Whole Foods combination puts additional pressure on grocers such as Harris Teeter, which is Charlotte’s No. 1 grocer by market share. Parent Kroger reported its second straight quarter of declining sales Thursday after more than seven years of uninterrupted growth, sending its stock down nearly 19 percent.
Kroger shares fell another 9.4 percent on Friday and closed at $22.29. Shares of Wal-Mart, another big player in the Charlotte grocery market, closed down more than 4.6 percent at $75.24.