Two brand names you likely grew up with—Amazon and Whole Foods—are now becoming one behemoth corporation, thanks to a surprising acquisition announced today, in which Amazon will pay $13.7 billion to buy Whole Foods. The merger will relieve pressure on Whole Foods by activist investors, who had recently ordered a shakeup of the chain to improve what they considered to be its stagnant stock price. And Amazon seems to be benefitting—the price of Amazon stock rose 3 percent this morning. But what this deal means for the American public—it may very well massively affect how we get the food we eat, how much we pay for it, and what exactly we eat—remains to be seen.
The acquisition marks a departure for Amazon in several ways. First of all, Amazon will now own more than 460 grocery stores in the US, Canada, and the UK—giving the web-based groundbreaker its first significant real-world retail presence. While Amazon has been experimenting with bricks-and-mortar outlets of late, opening several bookstores and drive-thru pick-up locations, thanks to the acquisition it will own an extensive network of storefronts in upscale neighborhoods.
Second, Amazon is now a grocer, one that calls itself the "leading natural and organic foods supermarket" and "the first national 'Certified Organic' grocer." While the online company has put a toe in the food delivery pool through its Prime Now and Amazon Fresh divisions, in the words of the New York Times, those forays had "barely made a dent" in the grocery retail sector. By acquiring Whole Foods, which had $16 billion in sales in the last fiscal year, Amazon is now a major player in the food world.
Given the surge in Amazon's stock price today, we know that Wall Street approves of the deal, but some economists and activists are not happy that America's largest web-services and package-delivery company will be running the supermarket chain known colloquially as "Whole Paycheck."
Philip Howard, author of Concentration and Power in the Food System and professor with Michigan State University's Center For Regional Food Systems, told MUNCHIES that the acquisition does not bode well for America's food system: "Whole Foods has already made it difficult for farmers and smaller food processors to obtain a good price, and Amazon's greater size and experience in squeezing suppliers will allow them to extract larger discounts, and from bigger players," he told us.
Wenonah Hauter, executive director of Food & Water Watch, agrees; she feels the deal is an ominous one for the public. She says this "extreme consolidation" will "lead to higher prices, fewer choices for consumers, and bigger profits for billionaires like its owner, Jeff Bezos." Hauter points out that the grocery retail sector has already been greatly consolidating, with recent mergers resulting in four retailers controlling 62 percent of food sales before the Amazon-Whole Foods merger occurred.
The ominous possibilities with regard to Amazon having power over both online and in-store food retail environments are many. Patty Lovera, assistant director of Food & Water Watch, pointed out to MUNCHIES that Amazon happens to own a patent for technology called "Physical Store Online Shopping Control" that effectively blocks shoppers connected to a retail WiFi network from accessing information about competitors by taking a "control action."
Lovera says, "If you bring a player like Amazon into the mix, that gives them a great deal of power to coordinate what information you are seeing. If you're in a Whole Foods and you want to see if a particular item is cheaper somewhere else and the first thing that pops up is Amazon, that gives them a pretty large incentive to just coordinate with themselves."
Lovera also points out that many are wondering how Amazon's extensive distribution network will play into the food world post-acquisition. "Every step of food supply is consolidated, and that's not an exception for food distribution. A lot of grocery chains run their own distribution and Whole Foods has historically had a very strong relationship with United Natural Foods, so it will be interesting to see what happens with that. Maybe Amazon will just want to do that themselves instead of maintaining that relationship."
Is there any chance that the Trump administration will smell a monopoly here? Most experts are saying it's quite unlikely. Although the merger will be routinely reviewed by the Federal Trade Commision, Andrea Murino, an antitrust lawyer at Goodwin Procter in Washington DC, believes the merger will not be barred as monopolistic: "You can't think of this as a traditional antitrust problem because people who go to Whole Foods to touch the produce and get the freshest asparagus are not going to shop at Amazon… I don't think there's any direct Amazon Whole Foods competition. My guess is that this will get through."
Professor Timothy Wu of Columbia Law School, however, believes this merger does present real antitrust issues. He tweeted today, "Proposed Amazon acquisition of Wholefoods [sic] makes for a more interesting antitrust question than current doctrine realizes… I had a draft paper on super-monopoly—one firm holding multiple monopolies, which is what Amazon-Wholefoods is relevant to."
Amazon has never before entered into an acquisition this large. It's no overstatement to say that the way the world gets eats may well be changed by this deal.