Grocery retail shares take a hit after Amazon buys Whole Foods

Amazon is buying Whole Foods for $13.7 bn in a surprise announcement and other supermarkets quake in the wake of the news. 

The blue chip index closed out the week on its fourth straight high up 0.2% or 24.52 points at 21,384.42 as energy stocks were amongst the gainers, while the S&P 500 tipped 0.03% at 2,433.15.

Nasdaq meanwhile closed down -13.74 points at 6,151.76 as tech stocks continue their rough ride. Oil price rise helped to propel energy stocks 1.6% higher.

• Dow 21,384.42 +0.2%
• S&P 500 2,433.15 +0.03%
• Nasdaq 6,151.76 -0.22%
• Russell 2000 1,406.73 -0.24%
• NYSE Composite 11,772.03 +0.27%
• Gold 1,256.30 -0.02% 
• Oil WTI $44.72 -0.04%

• 10-Year Yield  -0.01%

Supermarket shake up

Amazon's surprise sale of Whole Foods was an earth quake for grocery retail businesses Stateside but investors were positive of the move. Amazon shares went up 2.44%

So while the organic food retailer, Whole Foods, saw a near 30% change to $42.68, at the other end of the scale, other retail businesses found it hard to swallow the news as share prices dove.

The laggards were Kroger sinking -9.24%, Target down -5.14%, CostCo -7.19% and Walmart -4.65%.

Amazon enjoyed market support with investors and analysts suggesting that this deal can only strengthen both the online retailer and Whole Foods bricks and mortar operation which had been struggling recently with more intense competition. 

Food wars?

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In Thursday's trading grocery retailer, Kroger's shares plunged sharply after it announced profits would be lower than expected. 

Kroger was dealing with the pressure of competitors like Amazon and Walmart moving into food and said it would make more meaningful investments in to its digital and online growth.

On Thursday, Amazon also announced a new service for its Amazon Prime members in Denver which allows one-hour deliveries of items not only from the online retailer but also Sprouts Farmers Market, another food retailer.

In its press statement, Amazon's Jeff Bezos declared, “Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy."

As Amazon reinvents itself once again (having also acquired a physical book store) with the acquistion of Whole Foods, investors may begin to wonder, how to adequately define Amazon

It's website offers a guide to the answer: "We're a company of builders. Of pioneers. It's our job to make bold bets, and we get our energy from inventing on behalf of customers."

Glut worries continue

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Oil prices made a slight recovery at Friday's close up 0.6% to $44.74 a barrel for light crude for July delivery.

For the past four weeks oil prices have drifted downward as the market remains unconvinced that the Organization for Petroleum Exporting Countries' production cuts can deal effectively with higher US production and getting global inventories back to their five-year average.

The forecast from the International Energy Agency that US supplies "at 2018 suggests that US crude production will grow year-on-year by 780,000 barrels per day, but...it is possible that growth will be faster."

"Our first outlook for 2018 makes sobering reading for those producers looking to restrain supply. In 2018, we expect non-OPEC production to grow by 1.5 million barrels per day, which is slightly more than the expected increase in global demand."

In addition, pressure comes from two OPEC nations exempt from cutting their output, Nigeria and Libya, which also have stronger-than-expected production making it harder to reduce a glut. 

Energy stocks rose at close on the oil price rise with gainers Murphy Oil up +4.23% and Occidental Petroleum +4.09%.