Q&A: What Does Amazon, Whole Foods Deal Mean for Retail CRE Sector?

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By Dennis Kaiser

Amazon’s blockbuster acquisition of Whole Foods sent shockwaves through the stock market, as well as the retail industry last week. While the proposed $13.7-billion deal is eye-popping, expansion by acquisition is hardly new, though the implications for those in the retail CRE sector are complex and will take time to better understand.

A CRE industry leader who has more insight than most on what the deal may mean is Cushman & Wakefield’s national eCommerce fulfillment practice leader, Ben Conwell. He joined the firm after directing North American real estate operations for Amazon. Conwell offers unique insights regarding the real estate impact of the acquisition that Amazon had explored last year, though elected not to move forward at the time.

Q: The timing of Amazon’s deal to acquire Whole Foods certainly robbed rival Walmart of bigger headlines on the day it announced its long speculated acquisition of Bonobos for (only) $310 million was finalized. What is behind the M&A activity?

A: Amazon’s acquisition of Whole Foods is the “biggest” example of the very active M&A deal flow in the online retail and logistics industry over last 24 months, about which we have previously reported. It will continue to be a significant factor in the space, as players expand brand reach, pursue exit events for select operators, and seek scale and economies in logistics.

Q: What does this acquisition do for Amazon?

A: This move gives Amazon an instant physical presence in hundreds of markets with excellent complementing demographics. And we can’t overlook one of the more intriguing indirect details: this gives Amazon a stake in Instacart—still one more opportunity for Amazon to learn from/leverage technologies and processes for last-mile delivery. Instacart surely didn’t see this coming when it expanded its relationship with Whole Foods 18 months ago. I find this both intriguing and ironic.

The addition of a suburban footprint is good for Amazon, but the real impact is with Amazon gaining a significant urban footprint with Whole Foods. This has an even more strategic value for Amazon.

Q: How might the deal play out across the various initiatives Amazon already had underway?

A: This is a tremendous shot in the arm for Amazon’s efforts to finally find a way to run its AmazonFresh and nascent retail store offerings profitably. Growing its offerings organically poses too many challenges for Amazon to get to meaningful scale in the grocery space; a significant acquisition such as this is necessary to (paraphrasing an early Bezos motto) get bigger fast.

There is also an intriguing overlap of customer profiles, with similar demographics. Whole Foods customers and Amazon base customers are similar; granted, Amazon customers are more likely to do their grocery shopping at organic, boutique retailers like Whole Foods than AmazonFresh.

Q: Why is it key for an online retailer to also have a physical presence?

A: Cushman & Wakefield has been saying for a long time now that the big breakthroughs in grocery logistics and delivery is and will continue to be primarily through existing retail store platform (which already has location, store infrastructure for freezer, cooler, labor etc.), rather than from huge distribution centers. This is perfect example of just that.

Although not perfect, the Whole Foods supply chain infrastructure is a hugely valuable asset. And nobody is better suited and capable of taking the existing Whole Food supply chain infrastructure and making it much more efficient than Amazon. The status quo is only the start here.

For comments, questions or concerns, please contact Dennis Kaiser