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Amazon-Whole Foods Deal Sends Shockwaves Throughout Global Organic Food Industry

organic food market

The acquisition of Whole Foods by Amazon has shifted the dynamic of the organic food industry, putting even more pressure on ailing retailers such as Walmart while adding more capital assets and broadening its net margins

Amazon has stolen a march over its brick and mortar competitor, Walmart, by purchasing American organic food giant Whole Foods Market Inc. for $ 13.7 billion. The nearly $ 500 billion company is expected to expand its existing 340,000+ workforce by around 90,000 and add 400 physical stores to its e-commerce assets. Amazon CEO Jeff Bezos’ vision of “selling everything to everyone” just got a huge boost thanks to this acquisition. This acquisition puts Amazon firmly in the driving seat for capturing a higher market share in the $700 billion U.S. grocery sector. German discounters Aldi and Lidl are battling Wal-Mart, which controls 22% of the U.S. grocery market, with each vowing to undercut whatever price the others offer, and now with Amazon in the mix, a price war seems likely.

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Firstly, a quick and dirty on Whole Foods. As per TechSci Research report “Global Organic Food Market By Product Type, By Region, Competition Forecast and Opportunities, 2011 – 2021”, Whole Foods’ organic/natural food products retail coverage area share was around 70%, the highest in the US and retail coverage area share for other products was around 30% (all data provided is for 2015). Experts at TechSci Research in the report had singled out Whole Foods as the top prformer in key areas in the United States organic foods market. Whole Foods Market is a Fortune 500 compnay (ranked 176 currently) and, as of 2015,  was the 30th largest retailer in America, where it does around 97% of its business. In addition to the US, Whole Foods Market also marks its presence in Canada and the United Kingdom. For Amazon, Whole Foods will be a test case of sorts; grocery sector is a sector that Bezos has been iterested in for quite some time and the net margins provided by Whole Foods (3.2%) far outpaced Amazon’s 1.7%. On top of this, the physical presence of stores will bolster Amazon’s ever expanding lineup, which includes companies like Zappos, who will find a home in a physical marketplace, not to mention that it will streamline Amazon’s delivery service; Amazon lost around $ 7 billion in subsidising deliveries in FY2016.

On top of this is the business of organic foods itself. As per TechSci Research, there has been a shift in preference in recent years from standard food to organic food products. Millenials especially are ahead of the curve in this regard, because they are more aware about the ill-effects of eating unhealthy, and have the disposable income needed to pay the premium on organic foods. TechSci Research insights are borne out by data; Whole Foods experienced a 9.8% growth (’14 vs. ‘13) primarily due to these factors. Millenials are more used to buying products online, and, as per TechSci, online sales of organic food accounted for around 5% of total retail sales of organic food products globally. Amazon seems to have made a shrewd deal to retain its tag as a market leader and thinker in the e-commerce game.


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