Amazon wiped out billions of dollars worth of grocery store market cap last month when they announced plans to purchase Whole Foods. The announcement sent shares of Kroger, Wal-Mart, Sprouts, and Target, among others, plunging… (WMT -4%, TGT -5.5%, SFM -7.6%, KR -12%).
But, as we pointed out back in May, well before Amazon’s decision to buy Whole Foods, Amazon’s success in penetrating the traditional grocery market was always a matter of when, not if. Concept stores, like Amazon Go, already exist that virtually eliminate the need for dozens of in-store employees which will allow them to generate higher returns at lower price points than traditional grocers. And, with grocery margins averaging around 1-2% at best, if Amazon, or anyone for that matter, can truly create smart stores with no check outs and cut employees in half they can effectively destroy the traditional supermarket business model.
And while the demise of the traditional grocery store will undoubtedly take time (recall that people were calling for the demise of Blockbuster for nearly a decade before it finally happened), make no mistake that the retail grocery market 10-15 years from now will not look anything like the stores you visit today.
This post was published at Zero Hedge on Jul 26, 2017.