They won’t necessarily be put out of business, but they will be forced to respond to lower prices and lower margins with lower prices and lower margins of their own — making the current round of dividend hikes extremely difficult to maintain.
– Not so fast, Amazon. The tech giant's $13.7 billion acquisition of Whole Foods made headlines last week, but the Los Angeles Times reports it may not be as done a deal as previously believed. Amazon agreed to pay $42 per share for the grocery chain, but those shares closed at more than $43 Monday. That means investors expect a higher bid to come in, with one expert calling it "highly likely." Potential bidders include Kroger, Albertsons, and Walmart. And while it's unlikely anyone could outbid Amazon, its competitors have an obvious interest in making Amazon's takeover of Whole Foods as financially painful for it as possible. Here's what else you need to know: Vox reports an Amazon-operated Whole Foods could be a nightmare for other grocery chains. That's because while grocery stores have tiny profit margins, Amazon intentionally has essentially no profit margins at all: Money that comes in is reinvested in new endeavors. Amazon could immediately cut prices at the notoriously expensive Whole Foods, undercutting competitors without worry for its own bottom line. Whole Foods CEO John Mackey says the Amazon takeover started with a "blind date" six weeks ago. “We just fell in love,” the Wall Street Journal quotes Mackey as saying. “It was truly love at first sight." One economist expects Amazon's acquisition of Whole Foods to start "a supermarket war of historic proportions," and CNBC reports that would lead to plummeting prices that could kill the expected rise in inflation the Fed was hoping for. Bloomberg argues it's not grocery stores that should be most worried, but the companies that make the packaged goods that line their shelves. Amazon is already making its own diapers and batteries and could decimate the profit margins of consumer-goods companies by expanding that program through Whole Foods. Amazon could hurt packaged food companies like Kellogg and Campbell Soup in another way, CNBC reports. Customers were already turning toward fresher food options, and the acquisition of Whole Foods could accelerate that process. Finally, the acquisition of Whole Foods would increase the net worth of Amazon CEO Jeff Bezos by approximately $1.8 billion, according to UPI. That would increase his wealth to $84.6 billion, bringing him within $5 billion of Bill Gates, the world's richest man.