Why Did Amazon buy Wholefoods?

In case you have been hiding under a rock the past two weeks, you may have missed one of the biggest announcements to come out of the retail market.

Amazon, one of the largest companies in the US by Market Capitalisation decided to purchase Whole foods for $13.7bn in an all cash offer. This is indeed one of the biggest acquisitions in corporate M&A this year.

Amazon Wholefoods

This posed a number of question for people including most importantly those people who hold Amazon shares or trade binary options. Why was this done and where do we see this going?

Why Brick and Morter?

As many know, Amazon is the largest online retailer in the world. They have taken on some of the largest brick and mortar stores and have changed the way we think about on demand shopping. This, of course, excludes the massive amounts of money that they are making with ventures such as AWS.

For an example of how much the market values the potential of Amazon, the Revenue is about half that of Walmart stores but the company is valued at almost double by market cap.

However, despite this market valuation, one still has to appreciate that Amazon relies on logistics in order to run its business. It can have the best technology on offer but if it does not have the right infrastructure in place, it can’t supply its goods.

It is for this reason that Amazon saw the benefit in a Wholefoods investment. They want to get the benefit of additional locations in order to ship their goods. This is also particularly important for Amazon’s “Prime” business.

If people are buying groceries on Amazon prime they will benefit to have it delivered from a local area in the shortest possible time.

Why WholeFoods

Although many people think of Wholefoods as quite an exclusive food shopping experience, they do have quite a large reach when it comes to store presence.

They have over 460 locations across the US and most of these are in areas that Amazon could look to reduce their logistics times.

Apart from the logistical benefits, Wholefoods also has something else that Amazon prizes, data. The local data that Wholefoods has access to is immense. Amazon can use this on the local level to best tailor their offerings and refine their logistical business.

How will Amazon Perform

If the initial reaction to the news was anything to go by, it is quite clear that the market views the move as quite substantial. Amazon shares jumped by over 2% and all of the other retailers proceeded to fall.

Moreover, this breached the 270 period moving average which is a binary option signal to buy.

Recently, there has been a fall in the tech stocks as some commentators viewed it as a correction from a strong run up in the market.

This would allow some traders who do not have positions in Amazon to pick the shares up when they are at a relatively low levels.

Going Forward

Amazon has been one of the biggest disrupters in the retail market. They have taken over so many aspects of our lives and have shaped the way we shop online.

There is no doubt that their WholeFoods acquisition will add to the weight when it comes to local shopping from a logistics and data standpoint.

As soon as Amazon begins fully deploying their drones, a Kale salad from Wholefoods as well as that new cell phone you wanted are merely 30 minutes away.

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