Amazon announced in July that it was acquiring Whole Foods Market for $13.7 billion. The deal included some 440 stores nationwide — including about 18 in New Jersey — and a major opportunity for Amazon to expand its distribution network. — Courtesy: Whole Foods
By Joshua Burd
The news of Amazon’s $13.7 billion acquisition of Whole Foods Market this summer came with a bit of irony: Many bricks-and-mortar supermarkets in New Jersey and elsewhere had offered online delivery for years, but Whole Foods wasn’t among them.
But at the very least, the deal signaled to those other operators that Whole Foods is not to be taken lightly, especially with Amazon’s stated goal of lowering the chain’s notoriously high prices.
“They’re watching very closely,” said Matthew Casey, a Clark-based supermarket consultant and owner of Matthew P. Casey & Associates Inc. “It’s such a narrow, slim margin that they’re watching very carefully.”
Experts say the blockbuster deal, which followed six consecutive quarters of declining sales by Whole Foods, will stoke additional competition in an industry that is already fiercely competitive. Supermarkets remain among the most coveted anchor tenants for retail landlords, with experts noting that having Amazon as a parent company can only help the appeal of having one of the roughly 440 Whole Foods stores in their shopping center.
The chain has 18 locations in the Garden State and was in the midst of expanding at the time of the deal, having opened new stores this year in locations such as Newark and Metuchen. In recent months, the company also broke ground in Weehawken on a planned Whole Foods 365 store, the first in the state for the concept focused on convenience and affordability.
But the design and function of those spaces could soon change under Amazon, which experts believe will use the stores to create a network of pickup and distribution hubs. Ken Fioretti, a retail broker with NAI James E. Hanson, noted that there are still vacancies in the state as a result of the Great Atlantic & Pacific Tea Co. bankruptcy in 2015, which has prompted those landlords to consider subdividing the spaces as time goes on.
Amazon and Whole Foods could change that.
“For Whole Foods, instead of taking an entire 40,000- or 50,000-square-foot box, maybe they just take (20,000 or 30,000) for the retail portion, but they also use it for their distribution,” said Fioretti, a sales associate based in NAI Hanson’s Parsippany office. “There are definitely quite a few out there that are still perfectly good locations, but just haven’t gone anywhere yet,” he added. “So I have a feeling that Amazon or Whole Foods is going to be looking at these a lot more closely and saying, ‘If we’re going to create a distribution network, which holes in the market are these going to fill for us and where can we best do our distribution?’ ”
That could send a message to operators such as ShopRite, Stop and Shop and Acme to move on locations for which they’ve been hesitant. The operators have been slow to act in certain municipalities because they are on the cusp of being too close to an existing store, Fioretti said, but with Amazon’s plans, the chains “are going to want to protect their markets.”
He also noted that landlords who have now had a vacant supermarket space for more than two years have lowered their asking rents, creating additional opportunities for a new entrant.
Add in the fact that Casey feels there is still plenty of room for Whole Foods to grow in New Jersey, whether in upscale communities that would welcome the traditional concept or in urban, mixed-income areas that would meet the criteria for Whole Foods 365.
In any case, he said there’s little doubt the supermarket industry will be watching closely. He pointed to examples such as in the 1980s, when grocery chains reacted to the growth of wholesale clubs by offering their own “club pack” sizes, or when the spread of Boston Market pushed supermarkets to sell rotisserie chickens in order to keep the convenience customer.
Many top bricks-and-mortar chains have long since confronted the threat of online delivery, and Casey expected them to react accordingly to whatever Amazon has in store for Whole Foods.
“Supermarkets are very good at reacting to competitive threats,” he said.