Question

On June 16, 2017, Amazon announced that it would acquire Whole Foods (organic food retailer) for $13.7B. Analysts and other industry experts raised concerns about the future market positions of so-called "brick and mortar" retailers such as Walmart, Kroger, Target, and Costco in the wake of the acquisition announcement. State your conclusion about the acquisition i.e. in your view this acquisition does/does not pose a significant threat to Walmart. Please put your conclusion in the first sentence. It should read something like this..."Amazon's acquisition of Whole Foods represents(does not) represent a significant threat to Walmart's US operations. Then support your recommendations by briefly discussing why you selected that position - using at least 3 reasons for your conclusion and supporting them with strategy concepts and evidence (citing your sources). Then, briefly discuss the opposing arguments to your conclusion giving at least 3 reasons why others might disagree with your position, and supporting the opposition's reasons with strategy concepts and evidence (citing your sources).

Your two answers combined should be 400 words or less (excluding tables or exhibits). Make sure your answers are written in essay style, not as lists.

Answer 1

Solution –

Amazon’s acquisition of Whole Foods does represent a significant threat to retailers such as Walmart. The reasons for this threat are that firstly Amazon is backed by the power of data which it can leverage for its promotional strategies and lead to faster customer acquisition. Secondly Amazon operates through a radical model where it does not look for higher margins but concentrates on higher sales volumes. This allows them to really drive their competitors away from the market. The influence of Amazon can help Whole foods replicate the same model. Amazon has a strong distribution network. This can work in their favor and also reinvent the way the grocery industry operates. Amazon has the advantage of turning the whole foods stores into an all – in - one shop which can allow for a very stiff competition to retailers like Walmart.

The opposing arguments would be that Walmart has its own set of loyal customers so a threat from Amazon would not be so worrying. Secondly the other aspect is that Walmart has many stores across the states and hence their last mile delivery network is much stronger and competitive than Amazon. This would negate the advantages of network that Amazon has. Lastly Walmart and other retailers have the expertise to run the brick – mortar stores unlike Amazon and that the dynamics of business in grocery industry is way different than e-commerce industry so Amazon acquiring Whole Foods will have a lot of risks as Amazon will try to replicate their business model and it may fall flat.