Amazon is Buying Whole Foods. What Does it Mean for Beer?

FILED JUNE 16, 2017

Dear Client:

Amazon is coming in hot to groceries.

The e-commerce giant is set to acquire Whole Foods Market for a cool $13.7 billion, the companies announced this morn.

The Texas-based grocery retailer has more than 460 stores in the United States, Canada, and the UK.

So this is not only a big, swingin' move into brick and mortar for Amazon -- the takeover marks its "biggest transaction ever," per Bloomberg. Indeed, it's the biggest by a country mile. It's hard to believe but Amazon's largest transaction before the takeover this morning wasn't even in the billions. That deal came in 2014, when Amazon paid $970 million in cash to purchase "video-game service Twitch Interactive," according to Bloomberg.

Bloomberg's data indicates that Amazon "had about $21.5 billion of cash and equivalents at the end of March" this year.

Amazon will pay $42 a share in cash for the chain, per official statement. The transaction is expected to finalize in the second half of the year.

Whole Foods will continue to operate stores under the Whole Foods Market. Co-founder and CEO of the chain, John Mackey, will remain as CEO and Whole Foods' headquarters will stay put in Austin, Texas.

"Amazon clearly wants to be in grocery, clearly believes a physical presence gives them an advantage," Michael Pachter, an analyst at Wedbush Securities, tells Bloomberg. "I assume the physical presence gives them the ability to distribute other products more locally. So theoretically you could get 5-minute delivery."

WHAT DOES IT MEAN FOR BEER? This move likely won't sit easy with those afraid that Amazon wants to move more into beer sales.

As we reported earlier this year, sources have told BBD that a couple of beer suppliers are already grappling with how to deal with Amazon and other online merchants shipping beer to consumers in other wholesalers' territories.

We asked a few legal minds and industry insiders what this Whole Foods move could mean for Amazon's ability to work within the three-tier system.

One pointed to recent court cases upholding the state-based 3-tier system -- like in Illinois last week [see BBD 06-14-2017], which determined that a ban on out-of-state shipping was not discriminatory (i.e., only in-state retailers are allowed to ship direct to consumers).

Bottom line: Amazon still won't be able to ship beer from out of state, which is one part of the battle: 50 different markets, not one.

But if Amazon could still ship beer within state confines, Whole Foods would presumably make that a hell of a lot easier. So it will be important for all three tiers to work with regulators if they think Amazon getting bigly into the beer biz is a bad idea.

To wit, another source queried: Did this just give Amazon a nationwide network of licensed retailers that could (with some work on laws) act as origination points for online orders that would be "within the 3 tier system?"

Source pointed out there are lots of gaps in Amazon's current map of distribution centers, pre-Whole Foods. And it's possible that Amazon warehouses are not even eligible to be licensed by state ABCs.

This deal isn't about beer. But it has implications.

It certainly seems to provide a closed-loop system for showrooming. Online shopping is disruptive, for sure, but for untried items, people still want to taste and touch.

Your thoughts?

Stay tuned.

Until Monday,

Harry, Jenn, and Jordan

"I have made good judgements in the Past. I have made good judgements in the Future." - Dan Quayle

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