There are limits to how much pricing power Amazon.com, Inc. (NASDAQ: AMZN) can wield if it tries to subsidize its grocery goods in order to crush its
competitors the usual way, Bernstein analyst Brandon Fletcher
believes.
The Federal Trade Commission this week approved Amazon’s acquisition of Whole Foods Market, Inc. (NASDAQ:
WFM). The retailer, which closes the $13.7 billion deal
Monday, listed a full range
of items that would immediately see price reductions.
Whole Foods Customers Don’t Buy Soda Pop
In an analyst note, Fletcher listed three things that limit Amazon’s ability to try and take down Wal-Mart Stores
Inc (NYSE: WMT), Target Corporation
(NYSE: TGT), Costco Wholesale Corporation
(NASDAQ: COST) and Dollar General Corp.
(NYSE: DG)
Different demos: “The quinoa elite and mainline groceries serve different customers and don't directly translate.”
Related Link: Amazon-Whole
Foods Deal Details Shouldn’t Surprise Anyone
Range of reduced items are not that broad “This is more like a sale than a permanent roll back of 'whole paycheck' pricing,” he
wrote. “Walmart just plain does not sell the same items nor serve the same customers.”
Grocery logistics are notoriously tricky. “(It) will take time to integrate in a way that lowers costs enough, broadens
assortment enough, and increases locations enough to destroy the scale advantages. “
Over-Subsidizing = Destruction
“Yes, AMZN can subsidize anything, but at some point if their actions are value destruction and not disruption, the narrative
may change as you can disrupt infinitely, but destroy only to the limits of the balance sheet,” he said.
“We think that speed limit leaves the strongest incumbents largely unharmed.”
Latest Ratings for WFM
Date |
Firm |
Action |
From |
To |
Aug 2017 |
Barclays |
Downgrades |
Overweight |
Equal-Weight |
Aug 2017 |
Tigress Financial |
Downgrades |
Buy |
Neutral |
Jul 2017 |
Wells Fargo |
Downgrades |
Outperform |
Market Perform |
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WFM
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