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Amazon in 2Q17: Bookstores, Logistics, and Whole Foods

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Part 18
Amazon in 2Q17: Bookstores, Logistics, and Whole Foods PART 18 OF 20

Reality Check for Amazon in Whole Foods Consumption

Traditional retailers have upper hand

Amazon (AMZN) is placing a $13.7 billion bet on Whole Foods (WFM) to help it penetrate the ~$800 billion US (SPY) food retail market.

As most consumers prefer to purchase food where they can see and touch it, brick-and-mortar retailers such as Walmart (WMT), Costco (COST), and Kroger (KR) traditionally held the upper hand in this sector compared to their pure e-commerce rivals like Amazon. Walmart controls about 14.5% of US food and grocery sales, according to GlobalData Retail.

Reality Check for Amazon in Whole Foods Consumption

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Whole Foods’ comparable store sales decline

Although Amazon is unlikely to overtake Walmart overnight in becoming the champion of the US grocery industry, it hopes Whole Foods could help it rapidly boost its share of this market. However, Amazon should be careful not to count its chicks before they are hatched. Looking at Whole Foods’ fiscal 3Q17 (quarter ended July 2017) earnings scorecard, Amazon has a challenge waiting in the wings.

While Whole Foods’ revenues rose 1.1% to a little more than $3.7 billion in the latest quarter, its comparable store sales—or sales at stores opened for at least a year—dipped nearly 2.0%. Comparable store sales growth is a closely watched metric in the retail industry, as it is a key performance indicator.

Whole Foods’ profits fall

Comparable store sales aside, Whole Foods’ net profit also tumbled to $106 million from $120 million a year ago.

Escalating competition from Costco, Trader Joe’s, Sprouts, and Aldi may have contributed to the drop in Whole Foods’ comparable store sales and profits in the latest quarter.

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