For Amazon, Whole Foods Could Still Get a Whole Lot Bigger
08 Jan 2019
When Amazon (NASDAQ:AMZN) gobbled up Whole Foods Market for $13.7 billion in late 2017, the organic grocer had only recently decelerated its store growth plans in favor of focusing on recapturing the hearts of its most profitable customers. In fact, facing steep competition in the natural and organic grocery space, Whole Foods even closed a handful of underperforming locations. Today, Whole Foods stands at around 475 locations, up only slightly from the 469 stores it had around this time two years ago.
Now, however, it appears Amazon is set to resume Whole Foods’ physical footprint expansion in earnest. According to The Wall Street Journal earlier this week (may require subscription), the online retail behemoth is exploring potential retail spaces to bring Whole Foods to the western U.S. region where it currently has no stores, starting with areas of Idaho, southern Utah, and Wyoming.
A long runway for growth
For perspective, recall only five years ago Whole Foods set an ambitious goal of building 1,200 stores in the United States alone. And even when it tempered that target a few years later, as I noted above, the company pointed out it was maintaining a healthy pipeline of roughly 80 stores in development — a queue that would take a few years to fully build out should it so choose.
That’s not to say Amazon will immediately revive that 1,200-store target. But it’s clear with Amazon’s guidance (and its deep pockets) that Whole Foods provides its new parent company yet another meaningful source of revenue and earnings with a long potential runway for incremental growth.
Amazon’s near-term goals
Still, investors today should keep in mind that Amazon’s near-term expansion plans for Whole Foods have a somewhat narrower focus.
More specifically, according to WSJ‘s sources, Amazon is planning to expand its two-hour Prime Now delivery service to nearly all of its existing Whole Foods locations. The newest locations will also likely be larger than typical Whole Foods stores, enabling Amazon to capitalize on potential synergies with delivery and pickup of other (non-grocery) Amazon orders.
If true, this will mark a massive effort on Amazon’s part, considering Prime Now “only” offers two-hour delivery to just over 60 cities, and online grocery pickup to under 30 cities. This would also be consistent, however, with Amazon’s previous strategic expansion of warehouses for its core e-commerce business, which enabled it to bring Prime’s free two-day shipping perk to virtually every U.S. subscriber no matter where in the country they live.
As such, shareholders would do well to listen closely for fresh color on Amazon’s plans for Whole Foods when the company reports fourth-quarter results in the coming weeks.
Source: The Motley Fool