“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy! Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue.”

Jeff Bezos, Chief Executive Officer at Amazon, June 2017

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Amazon has just taken a giant leap into traditional retailing, purchasing the organic food chain Whole Foods Market for $13.7 billion ($42 per share). That’s an impressive amount for a once local and always all-natural food store set up in 1978 by a twenty-seven-year-old college dropout and his then college sweetheart. Starting off with just $45,000 in their pockets, alongside an unshakeable commitment to sustainable agriculture and organic produce, Whole Foods has since become one of the most successful traditional retailers of the past generation, growing from a small store in Austin, Texas to 465 stores worldwide. But why is one of the world’s largest online retailers interested in natural foods? The answer is a combination of the significance of organic in the global food industry as well as the commercial value in maintaining a physical presence in some of the world’s major cities.

Source: The Guardian (2017)

.Selling books, music, electronics and produce through an online subscription delivery service called Prime, Amazon has quickly become one of the highest valued public companies ($477 billion) with sales growing 35-fold to $142 billion over the past 15 years. With a reputation for innovation and entire industry takeovers, this acquisition clearly reveals Amazon’s intentions to become a major force in the global food and groceries market. Going organic was without a doubt the smartest choice. More consumers are choosing organic foods now more than ever before, with over 80% of US households containing at least one organic food product, shaping a global market valued at $80 billion in 2015. This is expected to reach $320 billion by 2025 at a compound annual growth rate of 14.8%. Organic foods, which are produced without the use of synthetic agrochemicals, have been found to be environmentally safer, more nutritious for the consumer and more profitable for the producer. Perceived quality of products has been a major challenge for online food retailers in the past and Amazon will rely on Whole Foods for their reputation of high-quality, healthy, organic grocery items. Combining Amazon’s quality online and delivery service with Whole Foods’ superior products will give shoppers the confidence to buy food online at an even faster rate. Market research by the Food Marketing Institute and Nielsen revealed that 20% — a total of $100 billion — of the global food retail market is expected to come from online shoppers by 2025.

Global Organic Food Market (1997 – 2015)

Source: FIBL & IFOAM – Organics International (2000-2017)

Initially operating under a pure e-commerce business model, Amazon has increasingly relied on physical assets such as logistic chains that spring into action whenever a customer makes a purchase online. With the promise of ever-faster orders and deliveries, significant investments have recently been made in vast fulfillment centers, Prime Air cargo planes as well as fleets of delivery drones. Urban presence in major cities is the next priority, one that will drastically increase with the Whole Foods acquisition. Making Amazon more convenient will further squeeze the more than 80% of shopping that is still purchased offline. There is no denying that the best businesses, as far as serving the customer, involve both online and offline elements, especially if you are targeting one of the largest consumer segments of the world – millennials.

The Whole Foods Market purchase will be the largest ever for Amazon, overshadowing its acquisition of Twitch for $970 million in 2014 and Zappos for $850 million in 2009. They even paid a 27% premium for Whole Foods, as shares were trading at $33.06 the night before the deal was announced. The result is already positive as Amazon and Whole Foods shares are up following the news of the acquisition, while Target, Wal-Mart, and Costco shares are down.

Amazon’s purchase of Whole Foods will inevitably create a major player in the global food market, further strengthened by the unprecedented demand for organic produce worldwide. Whether or not this is the beginning of the end for other major retailers, modern agriculture and the food industry continues its shift towards organic as consumers become more educated and aware of the health and environmental dangers of the conventional, and now outdated, system. This is why we at Primal Group are placing ourselves at the forefront of the new Green Revolution by providing a necessary resource for sustainable, organic agriculture: neem-based biopesticides and fertilizers.