An Amazing Acquisition
Amazon purchases Whole Foods
by Eldon R. Lindsey Professor of Economics and Finance, Dr. Clifford F. Thies
Grocery stores sound like the last line of defense of brick and mortar retailers against the onslaught of the virtual marketplace. So, what’s up with Amazon buying Whole Foods?
What’s Amazon’s motivation? Could this be to disgorge cash from Amazon’s corporate treasury without declaring a dividend? Its latest balance sheet shows $26 B in cash and equivalents, out of $83 B in total assets.
What’s Whole Foods’ motivation? This sounds like an exit strategy. Whole Foods has maximized or has nearly maximized its potential for growth and may now be viewed as a cash cow rather than a rising star.
Potential synergy: Combining Amazon’s ability to deliver items that cannot be stocked locally to the diverse market segments served by Whole Foods. This could enable Whole Foods / Amazon to move to a hybrid marketing strategy.
If this strategy works, we could see both an increase in variety and a decrease in price in the goods offered by Whole Foods.
Hybrid Strategies
It is not unusual for a company to get started with a singular focus and then to shift to a hybrid orientation to take advantage of the relative strengths of alternative methods.
For example, FedEx began with a revolutionary all-air route system. Today, it features trucks as well as planes. Similarly, UPS has moved from an all-truck system to a route system involving ground and air.
Home Depot combines direct manufacturer-to-retailer operations with much of its stock, with distribution centers with other items in its stock.
Dell burst onto the scene with a revolutionary assembly line in which it built each computer upon receiving an order. Nowadays, Dell manufacturers many computers “on spec,” in limited product lines, as well as continues to offer customized computers.
American Woodmark pre-stocks certain components, while making other components and assembling the components into kitchens upon receiving an order.
Managers nowadays are agents of change in product design, manufacture, distribution and finance, all in real time, in a changing and competitive environment. The process involves a series of innovations followed by rationalization. We, at the Byrd School, are committed to preparing our students to being successful in the real and exciting world of business.
