Amazon's acquisition of Whole Foods Market: What it means
What's the story
Global e-retailing giant Amazon Inc. is all set to complete its acquisition of American supermarket chain Whole Foods Market Inc. on Monday.
However, this $13.7 billion acquisition is expected to have far reaching effects with Amazon announcing that it will cut prices of several staple and popular grocery products.
News of the acquisition has already resulted in tumbling share prices of rival grocers.
Amazon's proposition
Amazon is looking to capture and dominate the grocery market
Once the acquisition is completed, Amazon will cut prices of organic grocery staples like bananas, avocados, brown eggs, butter, apples and similar products.
It also said that such groceries would be available for purchase on its website.
This move is aimed at capturing and dominating the grocery market by attracting huge numbers of consumers.
Market capture
Amazon's push towards market domination in the grocery industry
Amazon will also integrate its Prime service with Whole Foods' customer rewards programmes which would offer Prime members special offers and discounts.
With 60+ million Prime members, it's an incentive to customers over and above the proposed price cuts.
In essence, Amazon's willingness to go with lower profits in favour of market domination is going to up the stakes in the grocery price war.
Rivals
Amazon sends share prices of rivals plummeting
Amazon's planned price cuts and distributional mechanisms have already resulted in significant losses for rival supermarket operators.
For instance, shares of Kroger & Co., the biggest supermarket operator in USA, closed down 8%, meanwhile Walmart's shares saw a 2% decrease.
In fact, the S&P 500 Food Retail Index went down by almost 5% as almost $10 billion was wiped off by decreasing share prices.