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Podcast Episode #304
Real Estate Investing News

Amazon-Whole Foods Deal Could Open More Retail Stores

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Learn > [REN #304] Amazon-Whole Foods Deal Could Open More Retail Stores

Published: July 13th, 2017

The announcement that Amazon is buying Whole Foods is shaking up the food retail industry. While it may be a game changer for the way people shop for food in the future, it could also create big opportunities for real estate investors and developers.

We have done other podcasts on the crumbling empire of some retail businesses as more and more people shop online. In a recent article, CNBC wrote that store closings have tripled so far this year with 5,300 store closing announcements through June of this year. That’s almost as many store closings as there were for the entire year in 2008, at the beginning of the Great Recession.

While some retailers are closing up shop for good, others are weeding out low-performing stores or attempting to develop their own online presence, either with or without a physical presence. And now Amazon’s purchase of Whole Foods is proving that the retail business is “not” dead, at least not for a retail giant who’s already an industry leader online.

Amazon is a retail Goliath who’s trying to improve the shop-from-home experience with better delivery options. We have heard talk of Amazon deliveries by drone and driverless cars in the future, and now there’s talk that Whole Foods stores could turn into mini-distribution centers. Instead of going from physical locations to a web-based sales model, Amazon is doing the reverse — it’s developing a brick-and-mortar presence as an extension of its online business.
 

The Whole Foods Purchase

Amazon announced the deal on June 16th, that it agreed to pay $13.7 billion dollars for the purchase of Whole Foods. But Whole Foods shoppers don’t have to worry about the Whole Foods brand. CEO Jeff Bezos said in a press release that “Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue.”

The deal isn’t expected to close until sometime in the second half of the year, so we don’t know much yet about what Amazon is planning to do. But, the mini-distribution center idea works well with the new “AmazonFresh Pickup” service, which launched just weeks before the Whole Foods acquisition announcement.

The pickup service is an extension of the “AmazonFresh” service which provides door-to-door delivery of food products. That kind of delivery can be difficult however, if food needs to be refrigerated. The idea is to deliver “fresh” food and not wilted or melted food. So the new pickup service provides a store location where food can remain refrigerated until a customer comes to pick it up.

So far, it’s only being offered in two Seattle locations as a “drive-through” service for employees. What we could see from the Whole Foods deal is a pickup service that’s expanded to Whole Foods stores across the country.
 

The Last Mile

Creating a successful pickup service would help solve a problem known as “The Last Mile”. That “last mile” is especially important for food that requires refrigeration. Amazon needs to be able to deliver orders quickly and without any degradation to the product. Having refrigerated storage at pickup locations could solve that problem, although the quantity of storage needed may be an issue.

As Forbes noted, space is limited inside a store, and it could be difficult to predict how much storage is needed. Store managers would also want to be sure that online sales don’t wipe out inventory for in-store shoppers. Because many of the stores are constrained in size, it could be difficult to expand on current locations. But Amazon is not one to let a little real estate problem get in the way. In fact, The National Real Estate Investor feels the Whole Foods purchase will turn into big opportunities for the real estate business.
 

Effect on Real Estate

NAR says the real estate industry is all fired up over this acquisition. It says it remains to be seen whether Amazon uses Whole Foods as distribution centers or simply as locations that help advertise its AmazonFresh service, but it says Amazon will likely want to build a whole bunch of new stores. It also says Amazon will probably do that “quickly”. The article compares the 440 Whole Foods stores with Kroger’s 3,000+ locations.

NAR says there’s plenty of room to expand the Whole Foods footprint, and that will create opportunities for developers because the stores will be opening in new markets. It says with the kind of financial backing that Amazon can provide, those deals will likely be profitable for current owners and developers.

This won’t negate opportunities at existing locations. According to NAR, Amazon may need to reconfigure existing stores to turn them into mini-distribution centers. Depending on what Amazon is planning, it may have to create more storage, along with drive-through access and additional parking. NAR feels there will be “immense opportunities” for developers to help stores adjust to these future demands.
 

Confidence in Retail

NAR says the upshot of the deal is that it helps create confidence that retail is not going down in flames — that it will apparently live on as a way to give customers a more complete shopping experience that will more than likely begin online. When it comes to Amazon trying to solve that “last mile” problem for the delivery of cold-storage food, we could see plenty of opportunities for developers and investors who can provide solutions for new and existing stores.

Author

Kathy Fettke

Kathy Fettke

Kathy Fettke is the Co-Founder and Co-CEO of Real Wealth Network. She is passionate about researching and then sharing the most important information about real estate, market cycles and the economy. Author of the #1 best-seller, Retire Rich with Rentals, Kathy is a frequent guest expert on such media as CNN, CNBC, Fox News, NPR and CBS MarketWatch.

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