Money What This Whole Foods Acquisition Means for Wal-Mart and the Rest of the Industry

22:41  18 june  2017
22:41  18 june  2017 Source:   24/7 Wall St.

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There was a major shock among grocery stores this past week that threw the industry on its head. Prior to the acquisition news, we speculated that this industry might be in trouble as the result of too much competition and margins too low.

What This Whole Foods Acquisition Means for Wal - Mart and the Rest of the Industry . Whole Foods Market Inc. surge of 29.1% is biggest one-day gain since 2009. Relax With These Leisure Stocks. Cummins (CMI) to Lead Current and Future Technologies.

  What This Whole Foods Acquisition Means for Wal-Mart and the Rest of the Industry © courtesy of Wal-Mart Stores Inc.

There was a major shock among grocery stores this past week that threw the industry on its head. Prior to the acquisition news, we speculated that this industry might be in trouble as the result of too much competition and margins too low. It just seems that there are too many sources for getting groceries.

Additionally, the advent of online grocery shopping is not helping. Food delivery services such as Blue Apron are acting like the cooking-show in a box for millennials, further deterring grocery shopping. Not to mention that all this is happening at a time when restaurants have all struggled to find their niches in a peak-store theme.

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The historical "bull case" for WFM has always seemed to rest on two major pillars: First, Whole Foods will eventually expand to management's stated goal While Whole Foods and Wal - Mart represent the two extreme ends of the industry , there are numerous other competitors at various points in-between.

However, Wal - Mart ’s operational efficiencies made its food business profitable in and of itself. For the retail industry as a whole , it was estimated that 8% of the items customers came to buy were Internal Wal - Mart documents acknowledge that it is “behind the rest of the world” in the promotion of

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Whole Foods Market Inc

WFM

Amazon to buy Whole Foods for $13.7 billion

  Amazon to buy Whole Foods for $13.7 billion The online retailer is stepping into the physical retail world in a big, big way.The online retailer, which has spent the last few years toying around with experimental physical stores, said it has agreed to acquire Whole Foods Market for $13.7 billion, or $42 a share. The companies expect the deal to close in the second half of the year.

blog 'chrisfanale.blogdetik.com' is not exists. Topic Report: Industry Overview FOR WAL - MART STORES(WMT)

Evan Schuman: Whole Foods trying out whole new ways of retailing.

42.68
+9.62
+29.10%
Wal-Mart Stores Inc

WMT

75.24
-3.67
-4.65%
Amazon.com Inc

AMZN

987.71
+23.54
+2.44%
The Kroger Co

KR

22.29
-2.27
-9.24%

Consolidation seemed like a natural progression, and once Amazon.com Inc. (NASDAQ: AMZN) and Whole Foods Market Inc. (NASDAQ: WFM) announced their deal on Friday, consolidation is most likely a necessary progression to deal with this monster. 24/7 Wall St. has taken a look at these earth-shattering events from the past week and given some analysis on how this might impact the rest of the industry.

First, Kroger Co. (NYSE: KR) — known as the largest pure play grocer in the United States — released its most recently quarterly results on Thursday. However its guidance tanked the stock and also brought down the industry as a whole.

In terms of guidance for the full year, Kroger lowered its EPS estimate to a range of $2.00 (C$2.64) to $2.05 (C$2.71) from the previous range of $2.21 to $2.25. Consensus estimates are $2.19 in EPS and $121.24 billion in revenue for the fiscal year.

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According to the Food Marketing Institute, the rest of the industry is taking the opposite approach and downsizing its stores to an average 34,000 square feet. Intensity of Rivalry Among Competitors Within the foods retail industry Whole Foods largest competitors are Wal - Mart , and Kroger.

Shares of Kroger closed Friday down 9% at $22.29, with a consensus analyst price target of $32.50 and a 52-week range of $20.46 to $37.97. Over the course of the week, the stock dropped 27.6%.

Second, Amazon is making an incredibly ambitious purchase by buying out Whole Foods. While this is shocking, it is no doubt Amazon’s brick-and-mortar challenge to the likes of Kroger and Wal-Mart Stores Inc. (NYSE: WMT).

Under the terms of the agreement, Amazon will acquire Whole Foods for $42 per share (a premium of 27% from the previous close) in an all-cash transaction valued at roughly $13.7 billion, including the net debt of Whole Foods. The transaction is still subject to shareholder approval, but the parties expect it to close in the second half of 2017.

Whole Foods will continue to operate stores under the Whole Foods Market brand and source from trusted vendors and partners around the world. John Mackey will remain as CEO of Whole Foods and its headquarters will stay in Austin, Texas.

Shares of Whole Foods closed Friday up 29% at $42.68. The stock has a 52-week range of $27.67 to $43.45 and a consensus price target of $33.95.

With Whole Foods, Amazon on collision course with Wal-Mart

  With Whole Foods, Amazon on collision course with Wal-Mart Some industry observers say Amazon will find it difficult to use Whole Foods to pull away Wal-Mart shoppers because the two stores appeal to different customers. But Michelle Grant, head of retailing at market research firm Euromonitor, said Amazon could use an obscure part of the Whole Foods portfolio - Whole Foods 365 - to lure Wal-Mart shoppers.Whole Foods 365 offers private-label goods and lower prices than typical Whole Foods stores, and is targeted at younger, value-conscious shoppers. Amazon could provide the financial capital and tactical ability to build that into something big.

Whole Foods customers have significant overlap with Wal - Mart overall, which is increasing meaningfully among both heavy and light users. This reminds us of a similar event that happened in 2008/2009 in the restaurant industry when McDonald’s launched their McCafé specialty coffee

The stakes are highest for Wal - Mart . "I think this acquisition is a concern," he said. Some industry observers say Amazon will find it difficult to use Whole Foods to pull away Wal - Mart shoppers because the two stores appeal to different customers.

Amazon shares were up 2.4% at $987.71 on Friday, with a consensus price target of $1,110.84 and a 52-week range of $682.12 to $1,016.50. What stands out about this acquisition is that Amazon gained about $11 billion in market cap, which could nearly pay for the acquisition outright.

The Whole Foods acquisition is a huge disappointment for Sprouts Farmers Market Inc. (NASDAQ: SFM) on a couple of levels. According to Gordon Haskett analyst Chuck Grom:

First, given its Amazon Prime Now program (currently in ~10 stores with plans to add 10-15 more this year), we had always speculated that one day Sprouts might be on Amazon’s shopping list (not Whole Foods).  Second, given Amazon’s buying power (coupled with Kroger’s more aggressive price investments announced yesterday), the ramifications for Sprouts’ margin structure is certainly opaque at this juncture.  Conversely, on the other hand, let’s not forget that the Sprouts business model has been very transportable over the past 4-5 years (261 current stores; successful entry into the Southeast) and targets more of a middle-income shopper (e.g. greater market share opportunity long-term vis-à-vis Whole Foods).  Accordingly, we think today’s news 100% puts Sprouts into play with Wal-Mart and Kroger potential bidders.

Analysis | Drone-delivered kale, and 5 more things we might see at an Amazon-owned Whole Foods

  Analysis | Drone-delivered kale, and 5 more things we might see at an Amazon-owned Whole Foods Expanding AmazonFresh isn't the only thing that could come out of this deal. Expect the grocery shopping experience to be transformed.But expanding AmazonFresh isn’t the only thing that could come out of this deal. Amazon’s purchase could drastically change the way we shop for groceries.

When companies from Wal - Mart Stores to Whole Foods are struggling to sell groceries, the chances are more likely changing preferences than management screwups. What does this mean for the grocery companies? It means trying out new initiatives.

Wal - Mart had become the number-one food retailer in the nation. The meaning of the Vlasic story is complicated, but it cuts to the heart of how Wal - Mart does business. If the rest of the merchandise Wal - Mart sells is just 5 percent cheaper than at competing stores, that’s another billion.

Shares of Sprouts closed Friday down 6.3% at $21.01, with a consensus price target of $25.59 and a 52-week range of $17.38 to $25.98.

For Wal-Mart it might be too early to tell what this acquisition news might bring. On one hand, if Amazon continues down a path of consolidation of lower-to-middle income brick-and-mortar grocery chain/discount stores, the risk to Wal-Mart is much greater. However one counterbalance to consider is that a Whole Foods shopper is not a Wal-Mart shopper, in terms of demographic and location. One customer enjoys an annual household income of over $100K and the other pulls in around $40K to $50K. If Amazon decides to push the Whole Foods 365 Concept, then this might take a chunk out of the middle-income group that Wal-Mart enjoys.

Shares of Wal-Mart closed the week down 4.7% at $75.24, with a consensus price target of $80.49 and a 52-week range of $65.28 to $80.47.

Costco Wholesale Corp. (NASDAQ: COST) is seen in many consumers’ eyes as one of the best values out there, whereas Whole Foods has had trouble shaking its “Whole Paycheck” moniker. But this could change after the acquisition. The question is how Whole Foods’ value proposition changes relative to Costco once Amazon is in control. In other words, how much will Whole Foods lower prices?

Costco shares closed Friday down 7.2% at $167.11, with a consensus price target of $187.41 and a 52-week range of $142.11 to $183.18.

Amazon Robots Poised to Revamp How Whole Foods Runs Warehouses .
<p>The retailer could bring its distribution technology to the grocery chain</p>"We will be joining a company that’s visionary," Mackey said, according to a transcript of the meeting. "I think we’re gonna get a lot of those innovations in our stores. I think we’re gonna see a lot of technology. I think you’re gonna see Whole Foods Market evolve in leaps and bounds.

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