Amazon and Whole Foods acquisition

Amazon and Whole Foods

Maya Prabhakar, Muna Farah

20/06/2022

1.Amazon

Amazon (C.1994)

- Originally created as a virtual bookstore, Jeff Bezos created Amazon in 1994, which has now expanded to a company that sells 12,000,000 different products -Amazon sells to anyone who purchases from their store, and ships goods from over 175 warehouses internationally -Individuals can sell on Amazon, under the marketplace, which further boosts revenue -Amazon Employees: approx. 1,500,000

Market Share: 50% in the US (2021) Annual Revenue: $469.822 Billion (2021) First Quarter sales (2022):$116.44 Billion

2.Whole Foods

Whole foods (C.1980)

-Founded to bring 'Market style' food shopping into the supermarket, John Mackey and Renee Lawson Hardy founded Whole Foods in September 1980 -Whole Foods sells a range of organic foods, as well as toiletries and freshly made meals -Whole Foods operates in the UK, US and Canada

Market Share:

Net sales: (2021)

Employees: (2021)

1.88% Market Share, 2017

$8 million

Approx. 86,000 Whole Foods has over 500 stores internationally

3. Merger of Amazon and Whole foods

Merger details:

-It was a takeover, where Amazon bought Whole Foods - This was a vertical merger - The merger cost $13.7 billion

Reasons for the takeover:

- To encourage people to sign up for Amazon Prime memberships - They offered a loyalty program in exchange for discounts on groceries - To gain a bigger physical retail footprint

5. Benefits of the takeover 1

:) Protection of failing firm

-Before the takeover, Whole foods was failing: 2016:-5% decline in net income -1.88% market share 2018: -approx. 3% market share Whole foods revenue grew by over 40% in the 1st Quarter of 2018

:) Increasing Customer Base

-Following the takeover, Amazon granted Prime discounts for shoppers of Whole foods Amazon Prime users in 2016: 65,000,000 Amazon Prime users in 2018: 125,000,000

6. Benefits of the takeover 2

:) Rationalisation of Capacity

RATIONALISING CAPACITY- Reorganising a company to become more efficient -6 Whole Foods stores were shut down by Amazon AMAZON ANNUAL REVENUE 2016: $135.987 billion AMAZON ANNUAL REVENUE 2018:$232.887 billion

:) Economies of Scale

-The takeover allowed Amazon to lower average costs: AMAZON ANNUAL OPERATING EXPENSES (2016): $131.801 billion AMAZON ANNUAL OPERATING EXPENSES (2017): $99.653 billion

7. Benefits of takeover 3

:) Synergies

FINANCIAL SYNERGIES occurred, with Amazons' free cash flow (and annual growth) increasingAmazon Year on Year Growth 2017: 48.54% Amazon Year on Year Growth 2018: 52.98%

OPERATIONAL SYNERGIES: Amazon gained 460 stores, (Whole Foods) and 440 frozen warehouses

MANAGEMENT SYNERGIES: Amazon used its technology to optimise Whole Foods' stores, whilst Whole Foods added more products available to Amazon

4. Merger costs

Merger costs

Both companies Failed to investigate their cultural compatiility beforehand: - Amazon has a fast paced and 'cost-conscious' work environment whereas Whole Foods priotitises teamwork and employee morale. -This led to a decline in the working conditions in wholefoods as the workloads have increased, along with labour budget cuts. -Whole Foods success is based on their high quality goods (sold as higher prices), clashing with amazons low price and low quality goods.

10.Current position of Amazon

• AMAZON REVENUE, 2017: $177.87 Billion
• AMAZON REVENUE, 2020: $386 Billion

• AMAZON VALUATION, 2021: $1.549 Trillion

• Amazon valuation (2016): $356.65 billion

Grocery Store Online Growth (Amazon):

• 2017-15%
• 2018-58%

Amazon is currently growing faster than its competitors, demonstrating its overall success

8. Has the merger been a success or failure

Net sales of whole Foods

• Amazon's online sales have grown by 46% (2017-2022)
• Whole Food's net sales have increased by $900,000
• Amazon generated $18-$20 billion in revenue from grocery-related purchases revenue at Whole Foods

Overall:

This merger has increased sales at both Amazon and Whole Foods, but Amazon has benefitted from this more as Whole Foods growth as increased at a constant rate before and after its acquisition. It's likely that these two companies will demerge due to a differnce in values such as the quality of goods sold and the work culture.

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