In what can be an excellent milestone to follow for struggling Indian e-retailers such as Flipkart, the biggest of them all, Amazon, seems to have shown the way to a real life balance.
Amazon, the pioneers of taking the brick and mortar out of stores across America and the prime initiator of such moves across the world, becoming the world’s largest e-retailers, is back to where the trading world started: at brick and mortar.
It has just announced (June 16) a $13.7 billion takeover of Whole Foods Market, a mid-sized grocery and foods chain based in Austin, Texas. Whole Foods is the first “Certified Organic” grocer in the US.
Whole Foods won’t look any different after the takeover, with co-founder and CEO John Mackey staying on as CEO. The brand, too, will remain intact.
The urgency of Amazon to go in for the all-cash deal ($42 per share of Whole Foods stock) highlighted Amazon chief Jeff Bezos’ desire to stay on the ball and in keeping pace with the competition. The deal will complete in the second half of 2017, subject to stakeholders’ and regulatory approval.
The statements of the two chiefs in the deal provide a clear route map for Indian companies to follow. While Amazon’s balance sheet will reflect the business of Whole Foods, this is a merger of convenience.
Mackey sees it as a win-win, saying in a joint statement: “This partnership presents an opportunity to maximize value for Whole Foods Market’s shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience, and innovation to our customers.”
This purchase will be ahead of Amazon’s 2014 purchase of Twitch Interactive, Inc. That deal was worth $970 million.
According to Bloomberg, Amazon had about $21.5 billion in cash and equivalents as of late March.
Bezos promised a hands-off approach, saying: “Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy. Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades—they’re doing an amazing job and we want that to continue.”
Whole Foods, with over 460 stores in the US, Canada and the UK, had revenues of $16 billion in fiscal 2016.
Technically, though it was not as if the e-retailing boom was over. However, the demand for natural, organic and fresh is a difficult proposition for e-retailers.
In keeping with its innovative ways, Amazon announced in March the launch of AmazonFresh Pickup service for Prime members. What this intends to do is take orders online while allowing the customers to pick up fresh goods at AmazonFresh depots. Technically, with one stone Amazon has got a profitable business, as well as established storefronts for pickup.
The template, if applied to India could work wonders. Indians are in the habit of first “handling” goods they wish to buy. Physical storefronts will encourage them to make purchases with the discounts they can avail of online.
The only problem will be the old one of overheads. What Amazon has tried to do in keeping Whole Foods as a separate unit is to cash in on the successful business model of the company and add e-outlets for further expediency in sales.
— India Legal Bureau