As Amazon.com, Inc. (NASDAQ:AMZN) Completes Acquisition of Whole Foods, Grocery Retailers Prepare for Tougher Times
The US stock market gained ground last week, with the S&P 500 gaining 0.74% and the Dow Jones Indusstrial Average advancing by 0.64%. On Friday, the Federal Reserve chair, Janet Yellen, spoke at the annual summit in Jackson Hole, Wyoming, which sent the stocks higher, but the dollar fell. Yellen talked about the regulations that the central bank put in place after the financial crisis, saying that they helped to make the system stronger. However, after the speech, it was suggested by various reports and analysts that it might be Yellen’s last Jackson Hole appearance, given that her term expires in February and it’s unlikely that President Trump will reappoint her, since he has a strong stance against regulations.
In other news, on Friday, The Atlanta Fed trimmed its third-quarter GDP outlook to 3.4% from 3.8%, citing weak industrial production and housing reports. Towards the end of the week, the market’s attention was towards the hurricane Harvey that struck Texas on late Friday and led to serious damage to infrastructure and led to the shut down of a quarter of oil production in the US Gulf of Mexico and many refinaries, which in turn increased gasoline prices.
Meanwhile, financial advisors last week kept their focus on larger-cap stocks, according to TrackStar, the official newsletter of Investing Channel’s Intuition, which compiled a list of the 20 most searched tickers among financial advisors between August 20 and August 26. The companies that made the list didn’t have any major developments surrounding them. On the first spot, was AT&T Inc. (NYSE:T), which last week received the approval for the takeover of Time Warner Inc. (NYSE:TWX) from Mexican authorities, but still faces some hurdles in Brazil. Apple Inc. (NASDAQ:AAPL) was on the third spot amid reports that the new iPhone might be released on September 22 and might cost $999, according to sources cited by The New York Times. Wynn Resorts Limited landed on the seventh spot as its stock was affected alongside those of other Macau casino operators on the back of a major typhoon in the region. Johnson & Johnson (NYSE:JNJ) ranked on the 11th position amid news that the company was ordered to pay $417 million by a Los Angeles jury in a lawsuit involving its talcum powder.
The fourth most-searched ticker among financial advisors last week was Amazon.com, Inc. (NASDAQ:AMZN). The company closed the acquisition of Whole Foods Market on August 28, after the shareholders voted in favor of the merger last Wednesday and the Federal Trade Commission greenlighted the deal on the same day.
The eCommerce giant didn’t wait to get involved in the business of its latest acquisition. A couple of days before the deal was closed, it announced that it would lower the prices on the same day as the deal is completed. The announcement sent the prices of other grocery retailers tumbling as investors feared that Amazon.com, Inc. (NASDAQ:AMZN)’s involvement in the grocery business will lead to a market share war and Amazon.com, Inc. (NASDAQ:AMZN) has all the resources it needs to win it. Amazon is already known for keeping lower margins and not really caring about making a profit and the grocery business is already operating on very thin margins, so if they apply the same tactic to Whole Foods it will require a response from other grocery retailers, which will have to lower their prices and margins, which in turn will put more pressure on their profits and will make it difficult for them to maintain the steady dividend hikes. As a first sign of concern, shares of Kroger Co (NYSE:KR), the largest US supermarket operator plunged by over 7% on Thursday afternoon, while Wal-Mart Stores Inc (NYSE:WMT), the largest seller of food in the country, saw its stock lose 2%.
Aside from offering lower prices, Amazon.com, Inc. (NASDAQ:AMZN) has other ways to attract customers. It has a huge customer base using its Amazon Prime subscription, so it plans to turn Prime into a customer rewards program at Whole Foods supermarkets. The products at Whole Foods, including its private label products will be available for purchase via Amazon’s website and some of Amazon’s products, like the Kindle and the Echo smart speaker, will be available at Whole Foods locations. In addition, Whole Foods’ stores will be also fitted with Amazon lockers, where customers will be able to pick up the orders they placed online and send returns back to the company.
Analysts have also expressed their opinion regarding Amazon.com, Inc. (NASDAQ:AMZN)’s acquisition of Whole Foods. Morgan Stanley, which reiterated its ‘Overweight’ rating and $1,150 price target on the stock, said that Whole Foods should be able to lower its prices and expand its market share under Amazon.com, Inc. (NASDAQ:AMZN), while the tech giant should be able to add more Prime subscribers, who will enjoy additional perks. In addition, Barclays expects Whole Foods to reduce its prices, which can also lead to a faster decline of conventional retailers and other higher priced and organic retailers.