OK. Let's get a few things out of the way.
I have not done a rigorous financial analysis of Whole Foods. I don't have a "model" looking at discounted cash flow. I haven't even bothered to look at its margins, or how much revenue it generates, or its operating income, or any of the key metrics that matter when you're about to analyze a $14 billion deal.
With that out of the way, let me say: Amazon buying Whole Foods for $13.7 billion is a brilliant acquisition.
Amazon was already positioned to be the dominant retailer of the next 100 years. One of the biggest pieces it was missing? Groceries. Whole Foods fills that hole in the portfolio.
Whole Foods is a great brand that has one problem — it's known for high prices. (Whole Paycheck!) Amazon is a great brand that is known for low prices, and an insane focus on customers.
A year ago, Amazon CEO Jeff Bezos explained his business philosophy at the Code Conference. He said he finds the three things that will always matter to customers, and he focuses on them.
"Over a 20-year time frame I predict that selection, price and delivery accuracy and speed will still be major drivers," Bezos said. "You know, it's impossible for me to imagine a customer 20 years from now saying, 'I love Amazon, I just wished you delivered a little more slowly,' or 'I love Amazon, I just wish you had less selection,' or 'I wish your prices were a little higher.'"
Now, take that strategic outlook and apply it to Whole Foods. Who is going to beat Whole Foods? It sells great products, and it's a respected brand.
If Amazon can drive down Whole Foods' prices and increase technological advantages — think drones, checking out without dealing with cashiers, etc. — it will be a slam dunk.
There's a reason nearly every grocer is down on the news of this deal. Amazon is a fierce competitor. If you work in the grocery business, you're looking at what happened to bookstores, you're looking at what's happening to the retail industry, and you're thinking, "Uh oh, I'm next."
Amazon had been dabbling with grocery stores, testing an "Amazon Fresh" concept where you could walk in, grab what you want and walk out. Amazon can now take that beta test and weaponize it with Whole Foods.
This is going to be big.