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Amazon stock is still one of our top picks, and it has been for years. Money Morning Chief Investment Strategist Keith Fitz-Gerald told readers weeks ago how he was not worried as its stock price approached $1,000 per share.
And he is just as happy to see the company announce it would acquire organic and natural grocery chain Whole Foods Market Inc. (NYSE: WFM) on June 16.
Amazon.com Inc. (Nasdaq: AMZN) can now do for groceries what it did for books, music, and household items. And it does not even need Whole Foods' retail stores to do it, although there is great synergy in that regard.
What Amazon does need is Whole Foods' reputation for quality and its extensive fresh food distribution network. Several analysts have said Whole Foods' urban and suburban locations are so valuable for Amazon's delivery business that the deal could be worth it even if the grocer all but stopped selling food.
This is really just the next step in Amazon's march towards grocery domination. In March, Amazon added Martha Stewart's meal kits to its Amazon Fresh delivery service. These kits deliver fresh, portioned ingredients and a recipe guide to consumers at home to disrupt both the grocery store and restaurant sectors, similar to other names such as Blue Apron and HelloFresh.
But think about Amazon's muscle – and same day delivery – behind them and the advantage that gives its meal kits.
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Cowen & Co. analysts say U.S. grocery is "one of the sectors in the very early days of disruption." They expect grocery to drive e-commerce growth between 2017 and 2022, with estimated sales soaring to $177 billion in 2022 from $34 billion in 2014 and an estimated $70.6 billion in 2017.
Online grocery has been a tough sell for consumers. Shoppers have been reluctant to have their perishables like meat, vegetables, and dairy delivered to their homes. Aside from freshness concerns, customers prefer to handpick these items.
And that is precisely why many of these quality concerns could be overcome in a flash by Whole Foods and its reputation for having very high-quality products. If Amazon can successfully meld their value and convenience with Whole Foods' quality, consumers seem likely to set aside their earlier concerns about buying groceries online. That would be a major catalyst for the Amazon stock price as well.
And it goes even deeper. The acquisition will leverage Amazon's digital assets. Just think about how Amazon Echo, Alexa, and Dash products could make ordering easier than even sitting down with a smartphone.
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As long as the company plans to keep operating Whole Foods' brick-and-mortar stores, the checkout-free "Amazon Go" concept could be incorporated. Go is a cashier-less, fully automated store where customers can skip the checkout lines. Just swipe your device on arrival and the technology does the rest. Think of it as the self-driving car of the retail store world.
While Amazon could have built up its grocery business organically, it would have been both costly and time-consuming, even for a company as adept as it is. Whole Foods kick starts the whole thing, and when we consider that the market value of Amazon jumped up the day the acquisition was announced by more than the $13.7 billion purchase price, it was almost like printing money for Amazon shareholders.
But Whole Foods is just part of the reason we're so bullish on Amazon stock in 2017…