Amazon.com Inc's proposed purchase of high-end food retailer Whole Foods Market Inc for $13.7 billion hammered share prices of food and retail companies on Friday as the proven retail disruptor stepped boldly into another consumer space.
The deal, which not only helps Amazon make deeper inroads into the grocery sector but also marks its big entry into the brick-and-mortar retail space, sent shock waves through the retail industry.
"Implications ripple far beyond the food segment, where dominant players like Walmart ... and Target now have to look over their shoulders at the Amazon train coming down the tracks," said Charlie O'Shea, retail analyst with Moody's.
RBC Capital Markets said in a note the deal is surprising because the acquisition would be Amazon's largest to date by a factor of 10, and also because the online retailer has so far avoided having much of a physical presence. Amazon had established a tentative physical footprint with a small number of Amazon Book Stores.
Amazon shares were up 2.8 per cent at $991.35 and Whole Foods shares were up 28.6 percent at $42.51 in afternoon trading.
Shares of U.S., Canadian and European retailers and supermarket chains fell as investors fretted over the wide-reaching implications of the deal.
Shares of Wal-Mart Stores Inc were down 4.4 per cent at $75.46 on Friday afternoon, while Target Corp shares were down 7.1 per cent at $51.53. Supermarket chain Kroger Co was off 12.1 percent at $21.60, United Natural Foods Inc tumbled 8.6 per cent to $36.35 and Sprouts Farmers Market Inc was down 5.8 per cent at $21.13.
The S&P 1500 food and staples retailing index was off 4.3 per cent.
Canadian consumer staples stocks fell as much as 3.36 per cent, their biggest fall since October 2008. Two of Canada's largest grocery chain operators, Loblaw Companies Ltd and Metro Inc both fell more than 5.5 per cent at one point.
The fallout also spread to Europe. Shares of supermarket chain Tesco Plc were down 4.8 per cent and Carrefour slipped 3.7 per cent.
"Amazon's got its tentacles everywhere and that's another place to go," said Bruce Bittles, chief investment strategist at R.W. Baird & Co in Sarasota, Fla. "Amazon sees that industry changing significantly – and they see that people don't necessarily go to the grocery store anymore."
Packaged food companies were also damaged by the specter of healthier food that is less expensive targeting their customer base.
Shares of Mondelez International Inc, the owner of Oreo cookies and the whole Nabisco brand, were down 1.1 per cent while Kraft Heinz Co dropped 2.6 per cent and Hershey Co was down 2.5 per cent.
Food distributors were also punished, with the S&P 1500 sector index down 3.9 pe rcent and Sysco Corp down 3.5 per cent at $53.57.