Amazon is buying Whole Foods? When the Hell did that happen?
Big Red Car — going to be a great day in the ATX.
OK, so unless you were out of the country, you know that Amazon has put its loop around Whole Foods and is trying to buy them. Deal seems to be all but done.
So what does it mean? Haha, that’s the rub. Let’s explore it, shall we?
Everyone wants to peg it as a Amazon v Walmart grocery industry cage match. Is it?
Before we answer that question, let’s take a look at some numbers.
Relative size Amazon v Walmart gross revenue
Walmart gross revenue in 2016 was $485B. That’s $485.000,000,000. Grocery was 56% of that number or $272,000,000,000.
Amazon gross revenue in 2016 was $136B. That’s $136,000,000,000.
Whole Foods gross revenue in 2016 was $16B. That’s $16,000,000,000.
So, if one were to add Amazon and Whole Foods gross revenue, one would have $152B v Walmart’s $485B. Walmart is 3 X larger than Amazon.
If one were to compare Walmart’s grocery gross revenue v Whole Foods, the ratio would be 17 X ($272/16 = 17). Check the math.
Walmart is way bigger than Amazon + Whole Foods; and, way, way, way bigger than Whole Foods.
It is in the area of growth that the comparison gets interesting. Walmart is looking at some very low growth rates and in 2016, Walmart sales declined.
Amazon is looking at very robust growth rates with 2016 at 27%. Nearly none of that is their fledgling grocery operation. One may argue it is an apples v oranges comparison. Fair play to you.
Whole Foods is looking at a declining growth rate from 10% in 2014 to 2% in 2016.
One of the reasons Whole Foods welcomed the embrace of Amazon is because its growth has been declining.
Another way to look at it is Amazon was able to buy Whole Foods for a fraction of what it would have commanded four years ago. Shrewd.
Research & Development
R & D is not something which translates directly to revenue or profits, but the Big Red Car finds it very interesting to consider.
Amazon spent $16B on R & D last year.
Walmart spent $0 and Whole Foods spent $0.
There are those who might opine that Walmart’s accounting system doesn’t do justice to the derivation of this number as its real R & D investment is in acquisitions like Jet.com which it spent $3B on recently. Fair play on that one. Not biting completely, but fair play.
Still, one is tempted to think that R & D spending is an investment in the future. Does it sell more produce?
Bottom line it, Big Red Car
OK, here’s the bottom line for y’all.
1. After the hysteria, inquiring minds realize Walmart is much bigger than Amazon and Walmart’s grocery operation (largest in the country) is huge in comparison to Whole Foods. Think footprint.
2. Walmart is making huge investments in its own tech. They are doing this through acquisitions. There will be more than a little monkey see – monkey do.
3. The demographics of the Whole Foods v Walmart Superstore clientele are different. Whole Foods may be more urban while Walmart is more suburban. No surprises.
Revenue from Marble Falls (enormous Walmart Superstore), Texas is the same US dollars as from Austin By God Texas, y’all.
As to market share, there is a lot of America which Walmart will command and Whole Foods will never visit. Conversely, I’m not looking for a Manhattan Walmart Superstore. [Could just be me and my own biases, but sort of makes sense, no?]
There is a lot of suburban America out there.
4. The whole Whole Foods organic shtick is an “other” thing which is under pressure from everyone in the grocery business.
In Austin, Texas, Central Market (HEB unit) has better produce than Whole Foods. [Personal opinion only.]
Places like Costco and Sam’s Club are right in there with produce though they do not have the organic shtick. Then, there is Trader Joe’s and other places.
Whole Foods had first mover cred, but that is gone.
5. The growth rate thing is something to watch. Sure, the Amazon growth rate is driven by your collection of sneakers and my digital gadgetatti.
But, Walmart’s growth rate is flat. Whole Foods is sort of irrelevant because of their size. [Haha, a $15B revenue in the land of these giants gets you a “irrelevant” label. Tall weeds.]
So, the bottom line is MEH. The Whole Foods acquisition is smaller than what Amazon spent on R & D last year. Huh? Yeah, it’s a big lab experiment. See, you didn’t know that was coming did you?
If you’re interested in the actual numbers, you can look here:
Those are from Market Watch, a service the Big Red Car likes for its completeness, clarity, and ease of access.