It found out that delivery of package foods was reasonably straight forward. As what is the difference of a TV against serials? Just the Past Best Date.
However, fresh meat, Fish, Paste etc.. was more of a challenge. So, instead of using the capital to build the infrastructure. They have spent $13.5Bn in purchasing 430 odd stores that are located in the best part of town in the USA. The property alone would probably be worth the price. They waited until the Supermarkets were in trouble with the Food inflation and costs which were already dragging the share price of the sector down. Then, pounced at the right moment.
It seems that the market has already noticed what a strategy shift has taken place by the other shares in the sector dropping from 5-15% in the day. Even stable food suppliers shares took a hit in this. P&G Unilever etc.
Tesco marmite gate started highlighting the arguments between suppliers and the supermarkets. Now they have someone who is as large as Walmart overnight. Whilst ‘Whole Foods’ in the USA and UK will continue as is for a short time. You can image the stripping of overheads that is just about to happen. You have a business that has a model of the customer must be right and a 3% margin on all goods. Against, the Supermarkets that sit on a 5-6% margin. There will be only one winner as far as Amazon is concerned.
Interestingly Whole Foods has a foothold in the UK. One of the richest in the EU when it comes to profits in the Supermarket sector.
All of the Supermarket brands shares saw a significant drop when the news reached the LSE. I would imagine that there was a lot of phone calls going on over the weekend.
There was even talk that another competitor would pay more than Amazon. But any strategic analyst is going to point out that Amazon has shown its hand. It will just pick another USA Supermarket sometime down the road. It might even wait for the ‘Whole Foods’ suitor to buy the Whole Foods chain only to then purchase the complete package in one swoop and probably getting a better deal by that time as the share prices in the sector would remain subdued.
Now they have a local distribution point within the 430 odd USA towns and 3 in the UK in affluent areas. It will make the logistics of both food and goods to the door a lot easier. As with the AI that will be deployed. They will be able to judge what food they need where a lot better than the current management of ‘Whole Foods’ can and save on the waste that is currently being caused.
For the AmazonPrime & Whole Foods membership, it also works well. If you have already have spent with Amazon or Whole Foods they will be able to offer better deals when food is getting near the sell by date. Saving their Prime Members money against the Membership fee (£7.99 a month). Which, already offers next day delivery, Films and Shows, Music and now Fresh food. Which you can pick up on the way home or can be delivered same day.
Pharmacy in the USA is one great expense that the USA customer has. Imagine the cost savings that can and will happen. I sure that a certain US President would give them his blessing. As this would be a hit to the USA elites in their pocket.
The Cashflows within Amazon could easily allow for a further increase in their Banking offering. Currently, they offer the suppliers discounted loans to allow them to buy stock to sell on the Amazon platform. One can only imagine what other offers they could also undertake.
They listen to their customer’s complaints and generally place them first in the queue. Perhaps the politicians should take note?
A lot of Analysts in the USA Markets were questioning the Market Value that Amazon has seen. With very large PE (Price to Earnings).
However, it is very similar to the Tesla argument (It’s a car company in 2002). You have to stand back and look at the complete picture. Tesla is a Car (One that has 400,000 pre-sales before the Model 3 Car has actually been released, Has sold 80-90K priced Luxury cars – if you are driving a BMW 4-5, Merc E – with the performance and running costs of the Model S – your in the stupid category and should be fired from your management level job! The person who signed off your purchase should also be fired as they can’t obviously work out costs, Lithium Battery Maker (Will output more batteries than the rest of the world’s output put together) PowerWall & Utilities, Solar Roof (Currently, Solar is cheaper than Natural Gas in production of energy – Roof tiles that look like roof tiles that generate electricity and last longer than the current roofs)
- Amazon Sales Platform
- Amazon AWS (Amazon Web Services)
- Amazon PrimeMembership
- Amazon Stores (Acquiring 13.2Bn$)
Only more excitement to come in 2017….?
Thats all from me…..Enjoy the Sun!!