This morning news broke that Amazon.com is buying Whole Foods Market for $13.7 billion. This move will give Amazon a foothold into the brick-and-mortar side of retail that Amazon has significantly altered. The potential impact of this deal could be as large as anything we have seen in decades.
Investors voiced their approval of the deal sending Amazon's stock up 2.44%. Often the acquiring company's stock declines upon deal announcements. However, in this case investors, at least initially, are excited about the opportunity ahead for Amazon given the fact that the size of the grocery market is $800 billion per year.
Kroger, Target, Walmart and Costco were all among the companies that had significant sell-offs on the news. There is a question about whether the depth of the sell-offs were overdone. The grocery industry typically has slim profit margins, and with Amazon now taking aim at the industry competitors are going to have to figure out how to innovate if they don't want to lose market share to Amazon.
Currently online sales makes up only 2%-3% of the grocery business. That has always been expected to increase but with Amazon now in the business that should accelerate this shift.
In other news, the U.S. dollar has declined 6.5% from the five-year high it set last December.
The dollar's decline has been beneficial to many of the large U.S. firms that get a majority of their sales from overseas. When the dollar is too strong it leads to lower earnings by the multi-nationals. Other benefactors of a weaker dollar are emerging market economies. Many borrowers in these countries accumulate dollar-denominated debt which becomes cheaper to repay when the dollar weakens vs the particular emerging market currency.
As long as the dollar doesn't make a strong move in either direction from current levels it shouldn't have a significant impact on the economy.
The recent decline of the dollar has benefited large U.S. multi-nationals and the dollar will continue to be carefully watched. Also, Amazon's purchase of Whole Foods will have a ripple effect across multiple sectors and will offer some investment opportunities. I believe this story will continue to be the focus of the financial media until second quarter earnings reports begin in July.