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Amazon-Whole Foods Deal Details Shouldn't Surprise Anyone, Least Of All Grocer Investors

AMZN, KR, TGT, WMT | August 25, 2017

On Thursday, Amazon.com, Inc. (NASDAQ: AMZN) announced that it will officially complete its merger with Whole Foods Market, Inc. (NASDAQ: WFM) on Aug. 28. The e-commerce giant also revealed details of how the two companies will team up in the grocery space. Jefferies analyst Christopher Mandeville said there were no major surprises in the plan.

Amazon will begin lowering prices on select Whole Foods products starting next Monday with items such as organic avocados, organic brown eggs, organic salmon and organic rotisserie chicken. Additional price roll-backs will be happening in the months ahead.

Amazon Prime will now become Whole Foods rewards program and provide exclusive discounts to members. Whole Foods’ 365 private label products will now be available online via Amazon.com, and Amazon will be installing online pick-up and return lockers in Whole Foods stores as part of its omni-channel grocery strategy.

For traders looking for opportunity in the grocery space in the Amazon era, Mandeville says there will only be one true winner (see his track record here).

“The future unknown is what should continue to concern investors. In our view, the WFM/AMZN marriage will have major L-T ramifications for the entire grocery vertical (vendor/distributor/ retailer), forcing investment in price/quality and the experience (in-store and digitally), with the only true winner being the consumer,” he wrote.

According to Mandeville, the only good news for investors of rival grocery stores such as Kroger Co (NYSE: KR), Target Corporation (NYSE: TGT) and Wal-Mart Stores Inc (NYSE: WMT) in the near term is that the stocks have already been punished for Amazon’s entry into the market. He sees no reason they should be punished again.

Jefferies maintains Hold ratings on Kroger and Target and a Buy rating on Walmart.