No More Whole Paychecks, Amazon Promises

(Bloomberg) -- Hi, all. It’s EricWhole Foods except cheaper. What’s not to love?

Amazon nailed its press release on the imminent closing of its $13.7 billion acquisition of the organic grocery chain Whole Foods. “Whole Foods Market will offer lower prices starting Monday on a selection of best-selling grocery staples across its stores, with more to come,” the release says.

One tweeter quipped, “Thanks to Amazon, avocado-loving millennials can now afford houses.”

It’s hard to imagine a more pitch-perfect branding exercise. Combine Whole Foods’s reputation for high-quality groceries and Amazon’s “customer obsession,” and you’ve got the best of both worlds. Another tweet that captured the moment: “me: monopolies are bad, amazon is evil / also me: tell me more about how this deal will save me money at Whole Foods”

Of course, absent from the press release: a full explanation of how Amazon would find the savings anytime soon. There were hints as to how Whole Foods’ new owner will try to squeeze new revenue and savings over time. Amazon Prime will become the customer-rewards program for Whole Foods, driving more shoppers to the web retailer’s lucrative annual subscription. The e-commerce giant plans to integrate the two companies’ point-of-sale systems and logistics networks, potentially driving down costs. It’s hard to imagine either of those will have a meaningful immediate impact. Probably most importantly, Amazon will sell Whole Foods’ store brands online.

Still, it’s not as if Whole Foods was charging more for organic responsibly farmed salmon or organic baby kale because it hadn’t considered that maybe customers would prefer to pay less.

The Austin, Texas-based company had been trying to defend against a falling stock price. Before the acquisition Whole Foods’s stock had sunk to a nadir, dropping from a peak of $65.24 in October 2013 to a low of $27.96 three years later. (Amazon is paying $42 a share.)

Amazon’s stock fell less than 1 percent on the day of the price-cut announcement Thursday. A blip. The grocery chain Kroger’s stock, however, fell about 8 percent after Amazon announced the acquisition would close this coming Monday. The news erased almost $12 billion in value from grocery stocks.

My colleague Shira Ovide made the smart point that maybe Amazon doesn’t have to find a way to make up for the price cuts. Amazon has grown accustomed to a lower operating margin than Whole Foods. Amazon’s strategy revolves around driving prices lower and operating with razor-thin margins. And that’s not exactly a novel idea in the grocery business.

The point I’m building to here is that there’s a long road ahead for Amazon to justify its largest acquisition ever. Saying you are lowering prices is going to win over consumers, but it doesn’t mean that it makes sense for Amazon’s value to shareholders. That will require stellar execution.

There are plenty of lists of worst tech acquisitions of all time. Yahoo paid $1.1 billion for Tumblr. AOL bought Netscape. Google bought Motorola for $12.5 billion. Yahoo paid $4 billion for Geocities. Microsoft spent $6 billion on an ad-tech company called aQuantive. AOL-TimeWarner.

Some were just dumb ideas, but many others made sense at the time only to fail in execution. And most of those mergers at least involved two technology companies. Amazon bought a grocery store! I refuse to bet against Jeff Bezos. But we’ll need to see how well Amazon does operating stores that try to make money selling chicken before, well, we start counting our chickens.

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And here’s what you need to know in global tech

Jay Y. Lee, the heir and de facto chief of the Samsung conglomerate, is going to have less time for golf and jetting around the world to meet tech execs. The 49-year-old was sentenced to five years in prison on charges that included bribery and embezzlement. He’s not the first chaebol leader to be convicted for corruption. The trial, which transfixed the nation, also reflects a greater willingness in South Korea to dole out harsher punishments for collusion between business leader and those in power.

More news coming from Apple: a 4K upgrade for the TV box. The iPhone maker planning to unveil a renewed focus on the living room with an upgraded Apple TV set-top box that can stream 4K video and highlight live television content such as news and sports, Mark Gurman reports. 

The McGregor-Mayweather bout this weekend may be a watershed moment for sports streaming. In Japan, DAZN, the U.K.-owned sports streaming service is snapping up the rights to stream everything from soccer and MLB outside the U.S., cutting traditional broadcasters and satellite TV operators out of the picture. 

In India, the tumult at the top of Infosys continues. Nandan Nilekani and other founders moved to reassure investors and employees that the company will stabilize after they ousted the CEO and four directors and took back control of the troubled Indian outsourcing company.

To contact the author of this story: Eric Newcomer in San Francisco at enewcomer@bloomberg.net.