How the Amazon-Whole Foods deal could shake the Minn. grocery market

When Amazon decides to move into a new industry in a big way, there's reason to wonder how the existing business can compete, let alone survive.

If Amazon's $13.7 billion acquisition of Whole Foods goes through, it could have a major impact in the Twin Cities.

The online mega-retailer could offer a broader range of perishable groceries than it already does, and get them to many more people faster. Amazon could use hundreds of Whole Foods stores as distribution hubs to deliver items to customers in the delivery vans that are now a regular sight.

That prospect interests Dustin Ranem of North St. Paul. He's said if the combined Amazon and Whole Foods operations means home delivery of more dairy, frozen and produce items — and beat the likes of Aldi on price — he'd be won over.

"It would be easier to just order everything and have it all delivered. It makes the most sense," Ranem said.

To be sure, some consumers like Shannon Melloy of Shorview, may never embrace online grocery shopping.

"I want to be able to see a product and ensure freshness. It's not a chore that I like. But I prefer to do it myself," said Melloy.

Groceries are already a fiercely competitive business, with more and more players competing. Even the hardware chain Menards has extensive grocery offerings.

The Amazon-Whole Foods combination could put even more pressure on traditional chains and other big grocery sellers. That potential weighed down shares of Target and Supervalu, which owns Cub Foods. Even the mass-market food makers General Mills and Hormel were under pressure. Days after the deal was announced, Wall Street's concerns seem unabated.

But there's no consensus among industry analysts and consultants about which retailers are most vulnerable.

"For the traditional store-based operators, it seems that this point that there's not going to be a huge threat that the majority of their customers are going to abandon coming into stores and start ordering from Amazon," said Jennifer Bartashus, a retail food analyst with Bloomberg Intelligence.

Home delivery is complex, expensive and hard to make profitable, she said.

Bartashus predicts Amazon will expand its offerings of perishables primarily in densely-populated urban centers. She expects grocers like Target and Cub, whose stores are mostly in the suburbs, will be somewhat insulated from the threat posed by an Amazon-Whole Foods combination.

"The impact of Amazon won't be immediate in those more suburban areas because Amazon Fresh doesn't necessarily operate in those areas," Bartashus said.

Whole Foods has just five Twin Cities locations compared to about 70 Cub stores.

Bartashus said Amazon has struggled with the perception that the quality of its fresh food doesn't match competitors'. But the Whole Foods connection could change that.

"If they're able to say that the quality is Whole Foods quality, the quality is high, that should be a big boost for their reputation," she said.

Cub, Target, Coborns and other area grocers offer home delivery themselves or in partnership with entities such as Instacart. Some grocers, including Lunds and Byerlys, offer online grocery ordering with in-store pickup.

Supermarket industry consultant David Livingston said via email that Amazon poses the biggest threat to grocers that emulate Whole Foods.

Whole Foods will now have more cost-efficient distribution, he said, putting pricing pressure on mediocre natural, organic grocers.

Livingston said Supervalu and Target are more threatened by rivals such as Iowa-based Hy-Vee, which is establishing a major presence in the Twin Cities.

But retail industry consultant Howard Davidowitz thinks anyone selling groceries should be worried.

"Amazon is the killer," he said.

Target in particular is vulnerable, Davidowitz says.

"Whole Foods tends to be in more affluent areas, Target areas, a little more affluent than Walmart is," he said.

But retail industry analyst Michael Pachter expects grocers are in Amazon's bull's-eye.

"Supermarket chains are in trouble. I think ultimately it's the small guys who get squeezed. This is consumer electronics all over again."

But Amazon didn't wipe out Best Buy. And Amazon is spending billions to enter a substantially different industry at a time when that industry's fortunes are flagging.

So the question is whether Amazon adapts faster to its new landscape than grocers adapt to their latest competitor.

Correction (June 19, 2017): An earlier version of this story misspelled Dustin Ranem's surname.