Amazon’s (NASDAQ: AMZN) purchase of the American brick and mortar super market operator Whole Foods Market (NASDAQ: WFM) is logical but counterintuitive. On the surface the buy seems crazy but there are some good reasons for it including:

  1. It helps Amazon reduce delivery costs by providing brick and mortar pickup and return locations for merchandise.

 

  1. It allows Amazon to start merchandise ordered online for cash through the stores. Walmart.com is already doing this. One of Amazon’s weaknesses is that it cannot accept cash payments. Around 32% of payments in the US were cash in 2015 according to the Federal Reserve Bank of San Francisco. Cash still dominated in some areas of the spending around 52% of food and personal care purchases in 2015 were made with cash. Also more than 50% of purchases under $25 were made in cash in 2015.

  1. The Whole Foods stores can serve as local fulfillment centers for Amazon’s same-day delivery efforts. Amazon can now deploy an Uber type app that would enable contract drivers to deliver meals and groceries from Whole Foods. The same drivers can deliver other merchandise ordered through Amazon dropped off at Whole Foods stores by Amazon’s fleet of trucks.

 

  1. Amazon now gets access to Whole Foods stable of brands including 365, and Engine2. It can counter Kroger’s Simple Truth natural and organic brand by marketing the Whole Foods labels through its online marketplace and its grocery delivery service.

  1. Amazon can now starting marketing groceries and hot meals from Whole Foods through its website. These can be delivered by drivers based at the local Whole Foods.

 

  1. Amazon gets Whole Foods’ most valuable asset, some of the best and most experienced people in the grocery business. Amazon can now pick the brains of thousands of highly experienced managers, cooks and associates.

  1. It counters Walmart’s aggressive marketing of its stores as pickup and return locations for merchandise ordered online and same-day delivery

 

  1. It counters Kroger (NYSE: KR) and Alphabet’s aggressive marketing of same-day delivery services. Alphabet (GOOG) operates the Google Express delivery service.

 

Amazon is trying to change Whole Foods’ reputation as “Whole Paycheck-” a grocery store where average people cannot afford to shop. Whole Foods has been in a lot of trouble in recent months, it has been closing stores and losing market share to lower-priced rivals like Kroger.

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