Inc.’s (AMZN) purchase of Whole Foods Market, Inc. (WFM) has resulted in a downward slide for major retailer stocks. As of this writing, the S&P 500’s Consumer Staples Index was down by 1.56% to 574.76. The decline was mainly led by Wal-Mart Stores, Inc. (WMT), the world’s largest retailer, whose stock price slid 5.3% to 74.66 from the day’s start. Other retailer stocks are also hurting from the news. For example, Kroger Co.’s (KR) plummeted by 12.6% on the news to $21.45. Costco Wholesale Corporation (COST) is down by 5.84% to $169.54. (See also: Amazon To Buy Whole Foods In An All-Cash Deal). 

The deal combines complementary capabilities of both retailers. While Whole Foods has an extensive network of grocery stores and a loyal clientele, Amazon has the necessary technology credentials to scale Whole Foods online business. Amazon, which has been mulling an entry into physical retail for some time now, also gets access to a network of established warehouses and stores in prime locations in major cities. This is bad news for existing retailers because Amazon would have earlier had to expend significant effort and money to establish physical infrastructure for itself. (See also: Amazon Just Killed Thr Grocery Store). 

Amazon's low profit margins, and Whole Foods' diminishing margins on its products, has the potential to drive down profit margins for all grocery retailers. The deal could spell the start of a price war between grocery retailers. 

In an interview with Reuters, Renato Latini, a credit analyst at asset manager Brandywine Global, said: "There is pressure on everybody... Amazon are going to source products. If their technology applies down the supply chain - and to the extent that is proprietary - they could pinch the competition."


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