Retailers including Walmart could challenge Amazon for a takeover of Whole Foods Market, according to a note Thursday from J.P. Morgan analysts cited by CNBC.
Walmart in particular, with deeper pockets and stronger motives, is more likely than Kroger, Costco or Target to act on the chance and to engage Amazon in a bidding war, according to the report. However, analysts think that Amazon's own depth of resources — plus the value of its platform to Whole Foods — would win out over the potential bid.
In addition to the opportunity to acquire Whole Foods' higher-income customers, Walmart might enjoy thwarting Amazon’s ambitions, J.P. Morgan analysts said.
Walmart is already the biggest grocer in the United States, and its grocery sales account for more than half of its revenues. Its recent moves to acquire a slew of e-commerce companies, starting with its $3.3 billion takeover last year of Jet and ending last week with its $310 million acquisition of menswear startup Bonobos, signal just how determined the brick-and-mortar stalwart is to boost its e-commerce sales and take on Amazon.
While Walmart may have the means and the motive, it "does not stand to lose the most from Amazon’s drive into grocery," according to a report emailed to Retail Dive from GlobalData Retail analysts on Thursday. "The relatively small overlap with Whole Foods and a shopper base less inclined to buy groceries online, both work in its favor. Target and Kroger, however, are in the firing line, the latter being able to defend itself much better than the former."
Whole Foods and Amazon each stand to benefit from a tie-up, starting with the fact that many of their customers already overlap: 71.5% of all Whole Foods shoppers also shop at Amazon, and 58.4% are Amazon Prime members, while an even higher 84.2% of the grocer's core customer base also shop at Amazon and a whopping 70.3% of those are Prime members.
Meanwhile, Amazon's tech prowess could finally address Whole Foods' pricing problems, which it has grappled with to little avail, according to GlobalData Retail's report, which noted that 78.5% of consumers say they don't shop at Whole Foods because prices are too steep. Whole Foods, meanwhile, could help Amazon grow its decade-long grocery effort, exposing it to more markets and providing a nationwide physical presence.
But it's not an easy path for Amazon by any means, GlobalData Retail says. Most Whole Foods customers have at least one concern about an Amazon takeover, including food quality and ethics; less than a quarter (24.3%) have no concerns. "Main Whole Foods shoppers were fairly negative, with almost 43% saying they thought the deal was a bad thing," GlobalData Retail said. "Occasional shoppers were, on balance, more positive than negative. The finding underlines the fact Amazon will have to tread carefully as it makes changes at Whole Foods."
With less overlap and possibly more skepticism from Whole Foods shoppers about a potential Walmart bid, it could be even tougher going if the brick-and-mortar giant were to get in the game.