Shares of Costco Wholesale Corporation (NASDAQ:COST) declined as much as 8.4% Friday, and traded down 5.6% as of 1:30 p.m. EDT following news that Amazon.com (NASDAQ:AMZN) will acquire Whole Foods Market (NASDAQ: WFM).
This morning Amazon announced it will acquire Whole Foods in an all-cash transaction for $42 per share, valuing the organic grocery chain at $13.7 billion including its net debt. It's only natural, then, that investors might worry that value-oriented chains like Costco could suffer, as Amazon piles on margin pressure in the grocery space through Whole Foods' large footprint of physical locations.
At the same time, Costco makes up for its slim merchandise margins with annual fees -- the cost of which increased for the first time in five years earlier this month -- paid by its loyal membership base.
Amazon has also noted that Whole Foods will continue to operate stores under its own brand, and continue to source from its trusted vendors and partners. Its headquarters will remain in Austin, Texas, and John Mackey will continue to serve as Whole Foods' CEO.
So as it stands, the deal doesn't appear to be an imminent threat to the way Costco does business in the grocery segment just yet. But given Amazon's propensity for squeezing margins and moving to dominate the industries it enters, it's something worth watching over the long term.
John Mackey, CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Steve Symington owns shares of Whole Foods Market. The Motley Fool owns shares of and recommends Amazon, Costco Wholesale, and Whole Foods Market. The Motley Fool has a disclosure policy.