Gene Munster Weighs In On Whether Amazon Could Ever Acquire Walmart And What’s Next For Whole Foods


Instead of Amazon buying Target, ought to it as an alternative purchase Walmart? Photo Credit: GettyGetty

Gene Munster, managing companion of Loup Ventures, made headlines in January 2018 when he predicted that Amazon would purchase Target. Although the acquisition by no means occurred, Munster believes Amazon buying Target nonetheless is sensible.

Like Munster, I’ve made a collection of predictions and suggestions. In 2013, I made the advice for Amazon to accumulate Whole Foods on this analysis paper. I posted the paper on LinkedIn in May 2016, a full 12 months previous to Amazon asserting it was buying Whole Foods.

I posted the paper on LinkedIn on the request of LinkedIn members who loved studying my feedback on the retail and grocery industries. Much to my shock, the paper was well-received on LinkedIn and generated lots of discussions in regards to the deserves of Amazon buying Whole Foods. Most individuals commented that Amazon would by no means purchase the Austin, TX-based grocery retailer.

I’ve been on the file since 2015 that Amazon ought to purchase Target, and I’ve said as such in writing and as a speaker at conferences:  

Based on my analysis, I like to recommend that Amazon  purchase Whole Foods or the Texas-based regional grocery retailer, HEB. I rank Whole Foods primary over each grocery retailer Amazon may purchase for one motive: Amazon may also purchase Target and open Whole Foods Markets inside Target’s shops. Target prospects overwhelmingly store at Whole Foods and Amazon would profit enormously from the extra retail shops. Amazon + Target + Whole Foods simply is sensible.

Amazon acquired Whole Foods and it is actually potential that Amazon can nonetheless purchase Target. However, readers of the articles I write for Forbes have contacted me, together with a number of retail analysts, all asking the identical query: Why does not Amazon purchase Walmart?

I made a decision to seek out out.

Should Amazon Acquire Walmart? 

I’ve thought-about the query of Amazon buying Walmart previously, however I used to be by no means satisfied it was a good suggestion or that it could even be potential. The solely approach I can envision Amazon buying Walmart is through a inventory swap, however even then I used to be skeptical that the Walton household would assist an acquisition.

Amazon buying Walmart can be the most important acquisition within the historical past of enterprise.

Although Amazon buying Walmart or Target is an attention-grabbing thought, I consider Amazon buying Costco, Kohl’s, Best Buy, Dillard’s or Menards makes probably the most sense if Amazon chooses to not purchase Target.

Menards is very an attention-grabbing chance as it could present Amazon with a possibility to enter the house enchancment business. Amazon may introduce its personal label furnishings, electronics, work attire, footwear, home equipment and even a restricted assortment of groceries and pantry gadgets at Menards.

Amazon would face stiff competitors within the residence enchancment business from Home Depot. However, I am assured that Amazon can simply create a greater buyer expertise than what’s at present accessible at Lowe’s

Amazon enters classes and acquires corporations it may scale. Amazon can scale Menards and make noise within the residence enchancment business much like what Amazon has completed with its acquisition of Whole Foods. 

Even if Amazon acquires Menards, I could make the argument that it additionally is sensible for Amazon to accumulate a division retailer chain with Dillard’s or Kohl’s on the high of the record. JC Penney is a wild card. I wrote about choices for JC Penney in a latest article.

The problem for Amazon with reference to an acquisition of Dillard’s is that designers could resist having its manufacturers related to Amazon. Similar to points Walmart has encountered. However, I consider there are methods for Amazon to work across the objections and acquire the assist of designers that promote merchandise in Dillard’s.

Another thought is for Amazon to construct multi-use retail codecs whereby Whole Foods and Kohl’s (or one other retailer) be part of forces to create a retail expertise that mixes each shops right into a single format.

Amazon having retail shops centered on attire, footwear, and house is more and more turning into a necessity. Amazon can construct, purchase or lease to realize its objective of making an built-in ecosystem able to assembly the wants of its prospects through bodily and on-line retail.

(The proven fact that Sears could have many shops accessible on the market or lease will not be misplaced on Amazon. I’ve made the argument a number of occasions that Amazon may purchase nearly all of Sears’ shops if Sears goes bankrupt which now seems imminent. Amazon may purchase Sears Home Services to assist develop its new Amazon XL division centered on the supply of enormous gadgets to the house, equipment restore and set up, and organising sensible residence units.)

As for Walmart, I consider it ought to purchase the Duluth Trading Company.

Menards is a series of home-improvement facilities with 305 shops. Photo Credit: GettyGetty

Instead of me attempting to reply the query of whether or not or not Amazon ought to purchase Walmart alone, I selected to succeed in out to the person who induced such a ruckus along with his prediction in 2018. I contacted Gene Munster and he instantly agreed to offer his opinion on the subject. Munster was assisted by Andrew Murphy, managing companion at Loup Ventures. I’ve large respect for the workforce at Loup Ventures.

According to Messrs Munster and Murphy, it’s unlikely that Amazon will purchase Walmart for the next causes:

  1. From a regulatory perspective, permitting the primary and quantity three retailers (Walmart and Amazon respectively) to mix appears unlikely, particularly given Amazon’s progress trajectory. We envision a retail duopoly rising (Amazon vs. Walmart), not a monopoly (Amazon + Walmart). We’ve written extra on this subject right here.
  2. Beyond anti-trust causes, we predict that Amazon’s progress technique is extra natural than a Walmart acquisition would enable. Amazon has used M&A to both set up or cement a management place in a sure market (footwear, diapers, and so on.), or purchase property it does not have already got so as to add buyer comfort.
  3. We consider that it may be argued that Amazon does not have the bodily footprint property that Walmart has, however we predict Amazon would relatively “build it” (organically and thru medium to giant M&A) vs. “buy it” by buying Walmart immediately.
  4. Amazon and Walmart have very totally different core prospects. To over-simplify, Walmart focuses on a decrease family revenue and Amazon focuses on a increased family revenue (e.g., Whole Foods customers).
  5. We suppose the probability of the Walton household (as majority stakeholders) approving such a purchase order may be very unlikely.

Messr’s Munster and Murphy additionally said:

For the explanations defined above, we advocate that Amazon not try to accumulate Walmart. However, if Amazon selected to accumulate Walmart, the corporate couldn’t do an all-cash transaction prefer it did with Whole Foods. As of September 18, 2018, Amazon solely had $21B in money on-hand. We agree with you  inventory swap would take advantage of sense for lots of causes.

I agree that it does not make sense for Amazon to accumulate Walmart. However, if Walmart encounters points in India that negatively influence its inventory value and ends in requires Walmart to withdraw from India, I can envision Amazon buying Flipkart, which is now owned by Walmart.

The Walton household right now could have little interest in Amazon buying Walmart, but when circumstances change sooner or later as a result of Walmart’s market share and income diminish, the Walton household could change its thoughts.

When it involves enterprise and particularly the retail business, I consider it is important to crush all assumptions. For instance, what number of grocery executives satisfied themselves that Amazon would by no means purchase Whole Foods, solely to seek out out on June 16, 2017 that they have been mistaken?

I’m going to maintain an open thoughts on the subject of Amazon buying Walmart and I plan to revisit the dialogue in 2020.

What’s Next For Amazon And Whole Foods? 

In addition to the subject of Walmart, I introduced an argument to Munster that Amazon will make important strikes because it pertains to Whole Foods and I requested Munster for his opinion. Specifically, what I said was the next:

  1. Amazon can  construct as much as 2,000 Whole Foods shops; 1,000 to 1,500 AmazonRecent Pickup shops; and between three,000 to five,000 AmazonGo shops inside the U.S.
  2. In order to scale Whole Foods, Amazon might want to change the assortment inside Whole Foods to incorporate branded CPG merchandise (Cheetos, Oreo’s, Coke, Tide, Pepsi and so forth). Founder and CEO of Whole Foods, John Mackey, was unable to scale Whole Foods as a result of restricted variety of shoppers that needed to buy in shops centered on organics with few branded CPG merchandise. Whole Foods was failing previous to Amazon’s acquisition of the corporate.
  3. Amazon will introduce a warehouse membership idea within the new Whole Foods shops that it builds.
  4. Although natural progress is one thing Amazon can do, if gross sales in grocery falter, probably the most logical choice for Amazon is to accumulate Target and open Whole Foods Markets inside Target’s shops.

Amazon is getting ready to scale Whole Foods nationwide. It’s potential that Amazon may selected to accumulate the retailer Target and open Whole Foods Markets inside Target’s 1,850 shops. Photo Credit: GettyGetty

Messrs Munster and Murphy replied to my statements within the following method:

  1. Agree. 2,000 Whole Foods shops could sound aggressive, however it could carry Amazon as much as roughly the identical footprint as Target. 1,000 to 1,500 AmazonRecent Pickup shops is doable. The three,000 to five,000 AmazonGo shops is probably the most difficult a part of the corporate’s buildout however with 155,000 comfort shops within the U.S., Amazon constructing three,00 to five,000 AmazonGo shops is cheap.
  2. Disagree. Amazon’s curiosity in Whole Foods proved that the corporate’s core buyer is in an above-median revenue bracket. We see the corporate retaining a lot of the Whole Foods id, whereas selling its broad assortment of merchandise through Prime. Amazon is “the every part retailer” however that does not imply Whole Foods must be, too.
  3. Disagree. In our view, Amazon could experiment with warehouse golf equipment however we don’t see Amazon making a concerted effort within the warehouse membership idea.
  4. Agree. We evaluated our prediction that Amazon will purchase Target right here and defined why we predict it nonetheless is sensible.

In abstract: Amazon and Walmart are taking intention at one another; Amazon is considerably behind Walmart in bodily retail and must proceed making bets to catch up; Walmart is considerably behind Amazon in on-line retail and must proceed to accumulate giant on-line retailers to catch up. Amazon has a rising want for Target’s core competency: Merchandising. Amazon’s core retail competency lies in logistics (not merchandising).

Based on discussions with present and former Whole Foods and Amazon executives and associates, and based mostly alone analysis and expertise working globally with grocery retailers, I’ve to respectfully disagree with Messrs Munster and Murphy.

Many analysts consider PepsiCo merchandise, Coke, Tide and different well-known CPG manufacturers won’t ever seem on the cabinets inside Whole Foods. I disagree. Photo Credit: Bloomberg Finance LP© 2015 Bloomberg Finance LP

I consider Amazon will introduce branded CPG merchandise at Whole Foods to extend retailer visitors. Amazon can simply introduce branded CPG merchandise with out destroying Whole Foods. I have to additionally level out that when Kroger lowered costs on its natural merchandise, it attracted 14 million prospects that previously shopped at Whole Foods. The Whole Foods customers that defected to Kroger purchased extra than simply organics.

I perceive the priority many analysts have about introducing non-traditional CPG manufacturers inside Whole Foods. However, analysis I’ve carried out and reviewed signifies that if performed accurately, the manufacturers can co-exist.

Whole Foods prospects I’ve interviewed overwhelmingly assist the thought of Whole Foods increasing its assortment of merchandise as many Whole Foods customers are pressured to purchase merchandise from a number of grocery retailers to fulfill their grocery and pantry wants.

Also, and that is necessary, the concept Whole Food customers by no means eat Oreo’s, Cheetos or wash their garments with Tide is fake. Only a small proportion of Whole Foods customers eschew junk meals always. As one buyer informed me, “Hippies no longer rule Whole Foods.”

I am assured that Amazon will even proceed to introduce its personal personal label merchandise in Whole Foods. Amazon will develop into one of many largest CPG corporations inside 10 years. As the hub for on-line demand era and with a give attention to rising its variety of shops, Amazon has a rising alternative to transform shoppers to its personal label merchandise.

Many retail analysts agree with my sentiments together with the actual fact Amazon will introduce manufacturers on the cabinets of Whole Foods. Expanding Whole Foods assortment to incorporate well-known manufacturers can add worth to its prospects with out diluting the model. I consider Amazon will speed up including CPG manufacturers when an Amazon government replaces John Mackey as CEO someday in 2019 or 2020 on the newest.

I increase on the subject of Whole Foods on this article.

I do not see the worth to Amazon and its prospects if Amazon does not enhance its capability to offer a warehouse membership expertise on-line or inside Whole Foods. I’m not recommending that Amazon copy Costco’s warehouse membership mannequin. Instead, I like to recommend that Amazon create a service whereby its prospects should purchase merchandise in bulk and take away the necessity for Amazon prospects to even be prospects of Costco.

From a technique perspective, I do not suppose Amazon can sit again and ignore Costco. What’s to stop Costco from buying Target or Kroger and going after Whole Foods’s prospects? A big proportion of Prime members are Costco customers. Once once more, few grocery executives and analysts believed Amazon would ever purchase a grocery retailer. Costco buying Target or Kroger is actually potential.

Could I be mistaken and Messrs Munster and Murphy, proper? Absolutely. Only time will inform who will get this one right.

Conclusion

Amazon buying Target stays an attention-grabbing subject to debate. I agree with Munster that Amazon has every part to realize and nothing to lose if it acquires Target. From a technique perspective, if Target does not wish to be acquired by Amazon, my recommendation to Target is merge with Kroger or discover an acquisition by Costco.

Amazon buying Walmart is one other matter altogether. Messrs Munster and Murphy make a legitimate argument concerning why Amazon should not purchase Walmart. Nonetheless, the considered Amazon and Walmart working as one firm is an attention-grabbing thought.

In regards to Whole Foods, Amazon has no want to be a grocery retailer. Amazon desires to reimagine your entire grocery and meals expertise. Whole Foods solely controls round 2% of the grocery market. Does anybody actually consider Amazon shall be happy with solely controlling 2% of an $800 billion business?

Amazon did not purchase Whole Foods to take care of the established order. Expanding the assortment of merchandise within the shops and altering the format of Whole Foods must be anticipated. Frankly, it should be performed.

Many because of Gene Munster and Andrew Murphy for his or her invaluable help for this text.



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