Will Amazon Deal for Whole Foods Cripple America’s 38,000 Grocery Stores?

The Amazon.com Inc. (NASDAQ: AMZN) deal to buy Whole Foods Market Inc. (NASDAQ: WFM) was primarily aimed, according to many experts, at the huge grocery business of Wal-Mart Stores Inc. (NYSE: WMT). However, Whole Foods has only 431 stores against an estimated national total of over 38,441 grocery store locations. The deal may affect the prosperity of some of these as well.

Ironically, the narrative about Wal-Mart’s expansion has been that it destroys local retailers. In some cases, local governments have blocked Wal-Mart’s plans to build stores. However, Wal-Mart has still been able to build over 4,600 Wal-Mart and Sam’s Club locations. In theory, the huge customer bases these Wal-Mart stores draw takes traffic away from smaller retailers. The expansion of other big-box retailers with grocery sections, particularly Costco Wholesale Corp. (NASDAQ: COST), also compounds this problem.

According to FMI, an organization that represents the food retail industry, the sector employs 3.4 million people. This is based on Bureau of Labor Statistics data. Further, according to Progressive Grocery, total annual sales for food retail are over $668 billion per year. These numbers indication Amazon’s ambitions spread well beyond Wal-Mart.

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Amazon has been accused of destroying portions of the entire brick-and-mortar retail economy. The accusation will now spread to the national grocery business. However, Amazon may need more than 430 stores to have a significant effect. There is an argument to be made that it already has a much larger grocery operation than the Whole Foods stores because Amazon sells groceries online. It does not disclose the revenue from this, but because the grocery industry has become one of its targets, that revenue will grow.

One theory about Amazon’s growth is that it has costs tens of thousands of traditional retail jobs and cut billions of dollars from the market value of publicly traded companies in the industry. Amazon disputes this and claims its expansion has added a large number of jobs to the American economy and will continue to do so.

While it is too early to say whether Amazon’s effect on the entire retail sector will spread to the mammoth local grocery store business, there is little reason to think otherwise.

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