Struggling packaged food giants and grocers—already grappling to adjust to new health demands, ecommerce trends and discount pricing from Wal-Mart Stores Inc. (WMT) and other new rivals—again face heightened competition from Inc.’s (AMZN) near $14 billion acquisition of Whole Foods Market Inc. (WFM).

In a research note this week, Bernstein analyst Alexia Howard suggested that the tie-up between the global online shopping giant and the natural food retailer will reinforce disruptive trends in the food and beverage industry. At the same time, brick-and-mortar stores will likely continue heavy cost-cutting with new competition from German retailers Lidl and Aldi, making their big U.S. debut.

Fighting Over Center Aisles

As for food brands, Howard indicates that smaller brands will be the most affected, saying that “Conagra (CAG) and the midtier companies” will be hit the hardest. “There's probably a lot of independent brands that are owned privately around the country that have the least pricing power and will be hit hard by this," wrote Howard. The analyst also expects bad news for the cereal companies and packaged food companies as they are squeezed out into a narrower “center aisle” space in grocery stores due to evolving consumer demand.

As private labels steal share from the likes of Kellogg Co. (K), Kraft Heinz Co. (KHC) and Campbell Soup Co. (CPB), Bernstein expects Wal-Mart to expand further into private label and fresh food offerings. Howard says Whole Foods’ private-label 365 brand, which is well received by consumers but with relatively low penetration, will have a larger online presence. “The bigger deal for [food] companies is the 365 brand and over time, they could ramp that up to be a more important feature of their online offerings. That's a pretty big deal,” wrote Howard.

The analyst says shifts in the retail environment, mainly in North America, where consumers are seeking out smaller brands and distrusting legacy products, presents risk for center-store processed food manufacturers such as General Mills Inc. (GIS). For the Minneapolis-based cereal maker in particular, Bernstein expects the firm to struggle with ongoing volume pressure, shrinking shelf space and growing competition from prepared foods and meal kit delivery services. (See also: Retailer Stocks Slide On Amazon-Whole Foods Deal News.)

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