Would love to hear your thoughts and opinions? Where is my logic flawed? Is this gameover groceries?

  1. One of them is here:

Whole Foods has a near-negligble grocery market share. It caters to an upper income client who has no price sensitivity, and any other client who is silly enough to think that paying 40% more for their groceries is going to make them 40% healthier or live 40% longer. This is not a very sophisticated customer base, in other words; they are either rich or ideological. IOW, Whole Foods really has no “customer base” that matters, when it comes to broad market share.

2. Success in the grocery business has three factors. One is PRICE. In order to take market share, Amazon has to be cheaper than Wal Mart. Period. They can have all the sustainable stuff they like on the fringe, but if the core staples aren’t cheaper, they’re not going to grow market.

(It should be pointed out here that grocers make close to 0% on groceries. Where they make their money is in the fringe departments. Florist, drugstore, financial services, etc. Whole Foods is not positioned particularly well in these “fringe” departments, because of the markups they formerly enjoyed on the groceries. So, they have a lot of work to do. )

3. The second success factor is LOCATION. Wal Mart has about 6 thousand stores; Whole Foods has less than 500. So, even if they were to somehow be cheaper than Wal Mart…….people aren’t going to drive very far to save 2%. They’d have to be substantially cheaper, or they need to grow the number of their outlets significantly.

Which leads to another problem: Most Whole Foods stores are not standalone. They cannot be easily altered or expanded to have the Wal Mart grocery footprint, and they will NEED that footprint because consumers also like…..

4. (the third factor) CHOICE. If you don’t have the brands they like, they’ll go elsewhere.

Now to respond to several other notions you espoused:

But it is much more important than that. Whole Foods is a functioning, balanced, profitable network. They produce and buy product and consumers eat it up. They have solved the logistics and inventory problems that Amazon couldn’t.

True, sorta. A FEW consumers eat it up, not many. See chart above. But Wal Mart is the daddy of logistics. They have destroyed Mongomery Ward, Sears, JC Penney, and a host of regional retail chains in a raft of businsses by flattening the supply chain and transferring the profits to the bottom line; and there are rumblings that Target may also start to fall out in the near future. Entire MBA-level courses are taught about Wal-Mart’s supply-chain transformation.

Food logistics is specialized, but it still involves trucks. If it involves trucks, then nobody does it like Wal-Mart.

That means online retailers like Amazon MUST offer EVERYTHING your family wants to make it worth your while. Previously that was impossible, thanks to the spoilage problem.

Now that Amazon has solved that, the game is on.

Nobody has that problem solved, sorry. The only way you get to “everything online” is with drone delivery. Don’t bet that Amazon will do that better than Wal Mart will. People do not realize how technologically sophisticated WMT is….which is why….:

Amazon acquired Whole Foods for $13B. The market caps of the top supermarket chains dropped ~ $13B following the news. In effect Amazon annihilated grocery and the market made Kroger, Costco and Walmart pick up the bill.

Well, that’s not how the stock market actually works. What you have here is a typical market overcorrection based on headlines. On the day before the Whole Foods deal was announced, WMT closed at 79.95; the following day it closed at 78.34, down 2%. An unusually large drop for such a large cap stock, to be sure. It meandered between 78 and 80 for about six weeks, then took off, and is currently selling at 97.5 per share.

So evidently the share holders, 30% of which are very sophisticated institutional investors who are accountable to their customers if they get it wrong……….aren’t worried about Amazon at all.

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