The $13.7 billion acquisition of Whole Foods by Amazon earlier this year was a curious choice by the online giant at the time, but a deeper look into basic concepts of the M&A deal serves as proof that Amazon has a plan. With the significant decline in brick-and-mortar retail over the past few years, due in large part to Amazon engulfing the industry along with other major online marketplaces such as Alibaba and eBay, one would assume that acquiring a physical retail chain would be counter-intuitive given the current market climate. However, Amazon analyzed the existing state of its business and its due diligence concluded that the addition of Whole Foods was just the synergy it needed to implement its takeover of the grocery industry and fill a glaring weakness in its business plan.
The deal opens up 465 physical stores to Amazon for distribution in prime locations throughout the United States. The idea of an online and home delivery grocer which has distribution sites throughout the country could take over grocery shopping as we know it; and Amazon saw that. Amazon can utilize the physical locations as a storefront and showroom, while simultaneously running a distribution operation out of the back of the same locations. The vast distribution sites will also allow Amazon to cut costs and, in turn, prices on many grocery products to further drive competition in the industry.
In addition to the physical benefits of the deal, Amazon will further grow its intellectual database to better tailor customer shopping experiences. Since Whole Foods is a subsidiary of Amazon, Whole Foods is a separately run organization not subject to Amazon’s activist shareholder base. This allows Amazon to take risks and reinsert cash flow back into the business without having to worry about the stock price. Amazon, through Whole Foods, will be able to develop customer shopping experiences at both the online and physical store levels, by introducing technologies that interpret and analyze customer shopping habits.
The Amazon acquisition of Whole Foods provides a solid lesson for business owners of all sizes. By engaging in an analysis of your business’s strengths and weaknesses, you will be able to determine what areas could use improvement. It is not always best to try pouring money into your business to fix your weaknesses. There is likely to be one or more businesses out there that will provide the optimal synergies to your business with a business structure already in place. Amazon found that it could better serve its customer base and expand into the grocery industry by acquiring Whole Foods as opposed to pouring money into its own attempts to develop a grocery business. With that, Amazon was able to acquire valuable real estate throughout the United States, a distribution hub network, and a substantially improved customer database to develop tailored shopping experiences.
As a business owner, continued internal analysis of your business’ efficiency to make improvements from within is important, but it is just as important to be knowledgeable of opportunities presented by the market. Every business owner should sit down with their legal and financial adviser to discuss opportunities that can improve and grow their businesses; it may turn out that a strategic acquisition was what you were missing all along.
Bryan J. Rush is an associate with Tripp Scott in Fort Lauderdale. He focuses on corporate and real estate transactions, entrepreneurial business services, and providing counsel to businesses of all sizes in various industries and markets.