The Winners and Losers in Amazon’s Deal to Buy Whole Foods

Shoppers across the U.S. expressed surprise this morning at the news that Amazon, the Seattle-based online retail behemoth, was going to buy Austin-based Whole Foods Markets in a deal worth nearly $14 billion. Reactions to the announcement came fast and furious. Early afternoon reports suggest that because the deal isn’t done a bidding war could ensue, which has sent Whole Foods stock price up further.

The sudden dynamic unease in retail stocks suggests this merger will create a divide. The online giant and the organic grocer both have something to lose and something to gain from this deal. Here’s who wins and who loses in the aftermath of Amazon’s bid for Whole Foods.

Whole Foods

Wins:

• Investors: On news that there could be a bidding war, the grocer’s stock is rising.

• Whole Foods’ new parent company is sitting on a never-ending stack of cash, and those resources could allow CEO John Mackey to expand his concept in a major way. Amazon purchased Zappos in 2009 and, according to several reports, hasn’t changed the company’s culture or offerings. If Amazon gives Whole Foods that same autonomy, it would be a clear win for the organic grocer.

• Pressure is off Whole Foods corporate to perform for shareholders. At least for the time being, Amazon says it will allow Whole Foods to operate as it has, and Whole Foods promises not to sacrifice its mission or quality.

Losses:

• Whole Foods loses a lot here in relinquishing its independence, but in particular it could lose control over its products, mission, sourcing, pricing, distribution, and expansion.

• Whole Foods CEO John Mackey, who has taken a $1 salary every year for the past decade, loses his dream in this sale. “We’re a mission-driven company,” Mackey told Texas Monthly earlier this year. “It’s hard for many people to understand that Whole Foods wasn’t created to make money per se. It wasn’t created as an MBA project to meet some unmet market need. It’s something I was very passionate about. We’re not like every other corporation. Whole Foods Market doesn’t primarily care about money. It primarily cares about fulfilling its purpose. And so do I.”

Amazon

Wins:

• The retail giant bought out one of its competitors, and now owns the Whole Foods name, sourcing, (mixed) reputation, and consumer base of the largest organic foods store in the country.

• Despite offering more for Whole Foods than it was worth prior to the merger announcement, with Whole Foods stock at a its highest point since 2015 (a result of investors’ reaction to the news), Amazon already made a profit on the deal.

• Amazon also wins because in its purchase of Whole Foods the brand, it also bought the massive plots of expensive real estate the grocer owned, an investment it could use to build more fulfillment centers or sell for profit.

• Amazon CEO Jeff Bezos’s personal wealth can only continue to rise.

Losses:

• All eyes are on how Amazon will change Whole Foods. The risk that Amazon pushes technology and delivery at the cost of consumer confidence is significant. By being the big fish in an ever-diminishing pond, Amazon sets itself up for unwieldily growth, criticism from investors who may grow wary of its brash moves, and shoppers who have taken note of its dark side.

• If Amazon makes too many risky bets or begins selling Doritos next to organic corn chips, it could lose Whole Foods’ once-loyal customer base.

Other Winners

• Consumers — especially upper-middle class consumers in urban areas who already depend on Amazon and are interested in purchasing their groceries online — will likely come out as winners if Amazon decides to offer delivery of Whole Foods groceries in the future. Consumers (or at least their wallets) also win if Amazon, using its massive buying power, begins negotiating food prices down in the same way it did for books. (This could have more complex effects on the food system and farmers, but ultimately should be checked by government regulations.)

• Jokes aside, drones and bots aren’t going away any time soon. Amazon’s increasing wealth, bargaining power, and resources will continue to support the expansion of new and unique ways of fulfilling online sales and delivering goods to consumers.

Other Losers

• Low-income consumers could be affected by this sale in the long term as Amazon edges out the competition. Smaller grocers may go out of business or be forced to close locations that serve food deserts, limiting access to fresh food in rural or some urban areas.

• Traditional grocery stores, which once saw Whole Foods as competition, lose big here. As the markets demonstrated, investors have little confidence that grocers like Kroger, big-box retailers like Costco, and even discount options like Target will be able to compete with Amazon as it slowly moves to take over the grocery space in the same way it edged out bookstores in the early 2000s and helped kill traditional retail in more recent years.

• Instacart — the grocery delivery service that staked its business model on delivering food from stores like Whole Foods (and in which the grocer owns a stake) — and other grocery delivery services, are set to lose here. They lack the wealth and resources to compete against Amazon in the long term.

• Big Food could lose: As Amazon grows, it will have more power to push back against price increases from manufacturers, in a way becoming a new Walmart for food in the same controversial way that it has done in book publishing.