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Early Evidence That the Amazon-Whole Foods Merger Is a Picture Perfect Marriage

By Rich Duprey - Updated Sep 26, 2017 at 3:32PM

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We knew it would be a game-changer, but this combination is showing incredible potential.

Amazon.com's (AMZN 2.07%) purchase of Whole Foods Market looks like a match made in heaven. The first indication the two could be on an extended honeymoon comes from the immediate boost in sales the e-commerce king enjoyed right after putting the organic grocer's private-label foods on its website.

Maybe it was just the hype surrounding the merger and the chance to get Whole Foods products delivered to your door, but the impressive sales generated the first week they were available online underscores the strength of this tie-up. Take one brand's reputation for high-quality goods and the other's unparalleled ability to deliver on both price and convenience: This could be a wedding for the ages.

Whole Foods store opening in Harlem

Image source: Whole Foods Market.

A packaged-foods revolution

The $13.7 billion deal sent waves through the entire food industry. From grocery store chains to consumer packaged-goods companies, none wanted to face off against Amazon. And just in the first few weeks since the deal closed, we're already witnessing how the the ripple effect is taking its toll on competitors.

Look at meal-kit delivery service Blue Apron, which had its entire IPO thrown into confusion as a result of the Whole Foods news. The young company's valuation has suffered, and supermarket chain Albertson's just acquired Plated -- a rival meal-kit offering -- as a direct consequence of Amazon's entry to the space.

Fortune magazine also pointed to a Piper Jaffray survey from earlier this year that found Whole Foods' private-label ranked higher in consumer preference for organic food brands than others positioned as premium labels like Kashi for Kellogg and Annie's for General Mills.

And after Amazon put up some 2,000 365 brand products on its virtual shelves, there was a seismic shift of consumers rushing to purchase a half-billion dollars' worth of goods in the first week, according to e-commerce data firm One Click Retail. Amazon sold out of almost everything, as the report said only 7% of the top 100 items were left in stock.

Tablet with online food delivery order

Image source: Getty Images.

The epitome of omnichannel synergies

Amazon's entry is going to pressure packaged-foods companies and competing private-label names such as Treehouse Foods and SunOpta. There's obviously a large, pent-up demand for quality organic goods, and getting them shipped to your door makes them even more valuable. But equally important to the value of the merger is the amount of foot traffic it will generate at the brick-and-mortar business, too.

Amazon has taken over Whole Foods' hundreds of stores, and location-intelligence specialist Foursquare says customer visits surged in the first week of the official takeover, rising 25% during the first two days after the deal closed. And Amazon's decision to cut prices throughout the stores saw its share of visits, or its percentage of total U.S. grocery traffic, rise 17% on Aug. 28 when the discounts were first implemented.

For all that, Wal-Mart probably doesn't have to worry too much yet about the inroads Amazon is making, as it sells about $200 billion worth of groceries every year for a 20% share of the market, ahead of second-place Kroger, which has a 7% share. Whole Foods gives Amazon just 2% of the market.

Even so, these are two trusted brands that have come together, and as we're already seeing in the online sphere, and perhaps soon the physical channel, they've quickly become the ultimate power couple.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.

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