Amazon Wholefoods: A tasty deal?

What’s going on here?

Amazon are set to buy upmarket grocery business Whole Foods Market in a deal worth $13.7 billion (£10.6 billion).

 

What does this mean? 

Amazon will take on a big stake in traditional grocery shopping (they already sell groceries online). Amazon are paying $42 a share for the business in a deal which has been described as “game-changing” for the industry. It will be the biggest purchase that Amazon have made in their 23-year history and the transaction has already had a large effect on the market. Shares in rival grocers such as Wal-Mart have plummeted since the deal was announced, amid worries that Amazon will use its size and power to undercut its competitors and monopolise the market. 

 

Why should firms care?

While the deal is good news for anybody involved with Amazon or Whole Foods, the outlook for rival companies is much more bleak. Up until now, the grocery market has remained relatively unaffected by large online retailers such as Amazon - Amazon’s previous attempt, AmazonFresh, never really took off. However, now there is a worry that the company will massively outcompete their rivals, using their stature in order to offer much cheaper prices. This results in a market with much less competition, and smaller supermarkets will inevitably suffer as a result. Because of this, regulators are already scrutinising the deal, in order to ensure it does not abuse the market.

There’s a problem because the merger could effect competition in both the US, and around the world as a whole. American anti-trust (competition) law prevents mergers between companies which would have a significantly negative effect upon competition. Donald Trump even mentioned that he wanted to solve the anti-trust problem in his presidential campaign.

Amazon’s lawyers will have conducted sufficient due diligence and many think that it is unlikely that their latest move will result in any competition breaches. However, the deal does raise interesting questions about how much influence one company should be allowed to have in a market. In recent years, there has also been a move towards a more global approach to competition law so it’s even possible that the merger could breach EU regulations if the effects spread across the Atlantic. The International Competition Network (ICN) is a forum which brings together the competition authorities of different nations and allows them to discuss the issues that each of them are facing. Although the ICN doesn't strictly impose any rules, they would discuss cases like this which could effect many different countries so that they’re all prepared.

In this case, the deal looks like it’s going to pass the anti-trust barriers. But how much bigger does Amazon need to get before it’s just too big?

 

 

Article written by Matthew L.

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