Amazon’s shock £12.7bn deal to buy US grocery chain Whole Foods Market has savaged supermarket shares on both sides of the Atlantic. But winners and losers of Amazon ramping up its grocery presence are already emerging as the market tries to predict the retail behemoth’s next move.
Whole Foods itself has jumped by more than 30% on the news from around $33 to $43 per share to reflect the bid premium of Amazon’s $42 per share offer, but the movement in the rest of the sector has been almost as dramatic.
US grocery firms were hit, with Walmart swiftly dropping by over 6% and Ahold Delhaize down over 9% in early trading. The dramatic news had a similarly noteworthy impact in the UK, with Tesco and Sainsbury’s ending Friday down 4.9% at 171.1p and 3.9% at 252.3p respectively. Tesco - which was coming off its strongest quarterly sales growth in seven years - remains the worst-hit UK supermarket, down 7.8% to 165.9p.
“Whole Foods is not a landing but rather a launch pad for market share gains and though it might take time, a major step-up in the UK seems the next logical move,” predicts Exane. Cavendish Corporate Finance warned that: “Traditional supermarkets will find themselves looking over their shoulders as Amazon continues its invasion of their territory.”
Redburn commented: “The deal is still bad news for the sector, unless of course you are a target”, which seems to explain the surge in Ocado’s share price since the news. Ocado shares jumped 12% on Monday and are currently 10.4% up at 302.7p.
Morrisons was also mentioned by Merrill Lynch as a possible bricks-and-mortar grocery target for Amazon in the UK, with the supermarket defying the falls of its listed big four rivals and remaining 1.7% up since Friday’s news.
But Ocado was the main beneficiary as even if it isn’t a target for Amazon, the Whole Foods takeover plays into its hands. Exane BNP Paribas hiked its target price for Ocado from 220p to 325p as the deal saw Ocado’s chances of signing a partnership deal had “increased materially” as retailers without an online platform are forced into “a rapid catch-up”.
“We remain of the view that Ocado is unlikely to be an acquisition target, but we have to concede that the probability of an outright purchase has now increased,” Exane said. “More generally, if you are a US grocer and looking at the prospect of Amazon materially pushing on in online food, then, for all its many issues, Ocado is a business potentially ready and able to help you leapfrog the competition.
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