Amazon’s Acquisition of Whole Foods: A Case Analysis
Hao Wu
The College of Arts and Science, Stony Brook University, 100 Nicolls Rd, Stony Brook, NY 11794, U.S.A.
Keywords: Amazon, Whole Foods, Mergers and Acquisitions, Synergy, Post-Merger Integration, Corporate Strategy.
Abstract: In the last few decades, mergers and acquisitions (M&A) have emerged as essential business growth and
expansion strategies for companies. This paper examines Amazon’s 2017 Whole Foods Market takeover,
taking a close look at the strategic reason, implementing process, and post-acquisition economic results to
identify vital factors for successful M&A. Applying a step-by-step case study approach, the study considers
some of Amazon’s leading motives, including creating synergies, scale economies, market diversification,
and buying undervalued resources. According to the study, in spite of fast-paced integration efforts like cutting
prices, integrating Prime, and streamlining operations, the takeover faced serious challenges, especially in
integrating cultures and aligning operations (Blanding, 2018; Gelfand et al., 2018). Despite the challenges,
the takeover substantially improved Amazon’s foothold in the grocery business and illustrated the worth of
successful omnichannel integration. This study contributes to the knowledge of M&A success factors by
prioritizing prudent pre-merger assessments, decisive but well-balanced integration approaches, and rational
synergy expectations (Corporate Finance Institute, n.d.; Damodaran, 2005). Investors and business executives
are recommended to prioritize cultural fit and thorough integration planning to counter risks in mergers. These
recommendations offer practical tips for improving future acquisitions’ effectiveness, maximizing strategic
return as well as long-term economic performance.
1 INTRODUCTION
Mergers and acquisitions (M&As) are a popular
strategy for companies that aim for fast growth and
competitive dominance. Businesses engage in M&As
for diverse strategic reasons, inclusive of realizing
operational synergies, increasing market share,
product line diversification, as well as the purchase of
novel technologies (Ming & Wang, 2025; Jensen &
Ruback, 1983). For instance, Jensen and Ruback
(1983) believe that the main goal for the majority of
corporate takeovers is to gain management synergies
that increase efficiency and value. In accordance with
such universal motives, Amazon's Whole Foods
Market takeover in 2017 demonstrates how a
technology giant used M&A in order to move into a
new sector and increase competitiveness. This paper
analyzes the motive behind Amazon’s Whole Foods
takeover, the initial market response, as well as post-
acquisition results, combining pertinent literature, as
well as news, in order to determine the impact of the
deal.
2 THEORETICAL FRAMEWORK
2.1 Why Do Companies Engage in
Mergers or Acquisitions?
2.1.1 Synergy
Synergy The best-cited motive is the pursuit of
synergy – the argument that the combined entity is
worth more than the two companies alone
(Damodaran, 2005). Synergy can be in the form of
operating synergies (i.e. cost savings or greater
growth potential) and financial synergies (i.e. tax
benefits or greater borrowing power). In practice,
synergy is the “added value created by putting two
companies together.” It is commonly known as the
“magic factor” by which you pay a premium for the
firm being taken over, on the grounds that the two
companies together can generate new opportunity or
efficiencies not possible individually. Operating
synergies, for example, can produce economies of
scale, enhanced market strength, or accelerated
growth, whilst financial synergies can be risk
diversification or increased borrowing capacity.
Wu, H.
Amazon’s Acquisition of Whole Foods: A Case Analysis.
DOI: 10.5220/0014351000004718
Paper published under CC license (CC BY-NC-ND 4.0)
In Proceedings of the 2nd International Conference on Engineering Management, Information Technology and Intelligence (EMITI 2025), pages 277-282
ISBN: 978-989-758-792-4
Proceedings Copyright © 2025 by SCITEPRESS – Science and Technology Publications, Lda.
277

2.1.2 Economies of Scale
Economies of Scale One advantage of synergy that is
commonly sought in horizontal mergers is the
achievement of economies of scale. Consolidation
through a greater firm enables reduced average costs
through increased levels of production or improved
distribution (Corporate Finance Institute, n.d.).
Redundant functions (procurement, production, or
marketing) can be eliminated through consolidation,
removing redundant assets, lowering costs, and
increasing profit margins. Every dollar saved due to
economies in size directly goes to the bottom line and
can make the merger accretive in the sense that it
increases earnings. In the case of Amazon–Whole
Foods, for instance, one expected advantage from the
achievement of economies of scale was improved
purchasing power in the grocery supply chain,
potentially lowering costs for both (Misamore, 2017).
2.1.3 Diversification
Diversification One of the primary uses of M&A is to
diversify the business into a different space or market.
It can provide a foothold in a market that is
challenging to enter through a greenfield approach, or
for diversification in multiple industries so that risks
can be spread. Managers diversify so that they
decrease dependence on a sole market, so that they
can leverage a well-known brand in a new space, etc.
But it is observed that not every diversification is
value-enhancing – related diversification
(diversification related to areas in which the business
has complementary capabilities) is likely to surpass
unrelated diversification (Damodaran, 2005). An
acquisition is successful if and when the parent
business can add unique value to the target business,
and vice versa. A simple rule, therefore, is strategic
“fit”: companies with complementary assets or
markets can be expected to perform on mergers better
than companies with quite different operations.
operations.
2.1.4 Undervaluation
Undervaluation A second reason is that the acquirer
perceives that the target firm is undervalued or
underachieving. If the stock value is below the firm’s
true value, a buyer may attempt to acquire it cheaply
and maximize its performance (Damodaran, 2005). In
theory, this “value creation” strategy (also known as
the information or undervalued target hypothesis)
allows the acquirer to realize value that is locked in.
Whole Foods, for example, was being targeted as a
takeover prospect in part because its sales and profits
had been falling prior to 2017, which correspondingly
depressed its market value (Abrams & Creswell, 2017;
Reuters, 2017). Increasing competition and falling
growth had caused Whole Foods’ stock value to dip,
reportedly making it a lucrative turnaround bet in the
hands of a different leader. In practice, an acquirer
must be confident that it can perform the target
business better or achieve synergies; otherwise,
overpaying for the “undervalued” business may
eventually boomerang if troubles worsen.
2.2 M&A Strategy
Pre-Merger Planning Comprehensive review and due
diligence are conducted before any agreement is
reached. In this stage, an organization decides on
potential targets for acquisition that fit within its
strategic goals (for example, entering a foreign
market or buying required capabilities). Detailed due
diligence is necessary to value the target’s finances,
assets, and liabilities, in addition to ensuring cultural
compatibilty (Damodaran, 2005). Proper valuation of
the target is also important to avoid overpayment.
Planning for regulatory (for example, anti-trust
approval) and financing arrangements (monies raised
through debt, equity, or cash) is outlined in this stage.
In Amazon’s case, pre-merger was a matter of
observing a prospect in physical food retailing and
taking close observation of Whole Foods’ business
and worth (Misamore, 2017).
2.2.1 Pre-Merger Planning
Pre-Merger Planning A detailed review and due
diligence are done before reaching an agreement. In
this stage, an organization identifies probable targets
for acquisitions that fit into strategic objectives (e.g.,
entry into a new market or purchase of necessary
capabilities). Due diligence is carefully done to
examine the finances, the assets, as well as liabilities,
of the target, as well as for cultural fit (Damodaran,
2005). Proper valuation of the target is also important
to avoid overpaying. Regulatory planning (e.g.,
antitrust clearance) and financing arrangements
(money raised through debt, equity, or cash) are
specified in this stage. For Amazon, the pre-merger
stage was one that realized a vision in food retail
through physical stores and noted closely Whole
Foods’ business and value (Misamore, 2017).
2.2.2 Deal Execution
After identifying a target, the deal to acquire it
through a merger is negotiated and carried out.
During this phase, an offer (with, usually, a premium
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over the current target price to induce shareholders to
agree to it) is made, terms of sale are negotiated, and
a merger agreement is prepared. Major steps such as
the signing of a letter of intent, confirmation of
financing, and securing board and regulatory
approval take place here. Deal execution concludes in
closing the transaction, when ownership is passed. At
Amazon–Whole Foods, this phase was characterized
by quick agreement in mid-2017 on the $13.7 billion
all-cash offer, which was about 27% higher than the
Whole Foods’ pre-announcement market value.
Shareholders responded enthusiastically: Amazon's
market value rose by more than $11 billion on deal
announcement (almost the full price paid), reflecting
market expectation that the merger would be good.
Incumbent supermarket shares (such as Kroger and
Sprouts) declined sharply, reflecting anticipation that
an enlarged Amazon–Whole Foods would subject
them to more competitive pressure through cheaper
prices and new strategies.
2.2.3 Post-Merger Integration
After the deal is done, the integration heavy lifting
starts. Post-merger integration (PMI) is the
integration of the two companies’ systems, operations,
and cultures in order to realize the anticipated synergy.
More often, this step is the most challenging – often
integrating two organizations in practice is even
harder in reality, and inadequate fit is one of the
leading reasons for M&A failure (Gelfand et al.,
2018). Good integration includes coordination of the
strategies, merging supply chain, consolidation of
departments, as well as restructuring the managerial
teams. Integration also involves smoothing out
cultural differences in order to gain the acceptance of
the employees. Successful acquirers begin planning
integration quite early and create clear goals for the
subsequent merged entity (Damodaran, 2005). With
Amazon and Whole Foods, integration meant
leveraging Amazon’s consumer base and technology
to construct Whole Foods up, maintaining Whole
Foods’ brand in upscale groceries (Misamore, 2017).
3 CASE STUDY: AMAZON'S
DECISION, INTEGRATION,
AND STRATEGIC OUTCOMES
RATIONALE FOR THE
ACQUISITION
3.1 A Mix of Strategic Motives
First, Amazon pursued synergy between its online
shopping strength and Whole Foods’ brick-and-
mortar retailing presence. By buying Whole Foods,
Amazon immediately gained access to 470 upscale
grocery stores in the U.S., which could be distribution
points for fresh food and order pickups for online
shopping (Misamore, 2017). This provided Amazon
with a solid presence in the $600 billion grocery
market, in which it had had a limited footprint in the
past. Second, the transaction promised revenue
synergies with cross-sell opportunities among
Amazon’s and Whole Foods’ customer bases. Whole
Foods customers were higher-spending and food-
conscious – a desirable demographic that overlaps
with Amazon’s Prime subscribers. Amazon could
deepen customer loyalty by tying Whole Foods
benefits to Prime membership and accumulating
valuable consumer information (Misamore, 2017). In
fact, industry analysts observed that Amazon’s “real
interest” in Whole Foods was double-edged: “first,
the treasure trove of consumer data that comes with
this acquisition; and second, Whole Foods’ private
brand products” (Misamore, 2017). Third, the
acquisition promised scale and cost synergies in
grocery supply and distribution (Chen, 2018). Last,
the timing was opportune because Whole Foods was
financially lagging. Whole Foods’ same-store sales
growth had fallen from double digits in the early
2010s to below 2% by 2017, and its stock had leveled
off (Reuters, 2017). The chain was also experiencing
mounting competition from mainstream
supermarkets selling organic food. These
performance difficulties rendered Whole Foods a
welcoming takeover target (Abrams & Creswell,
2017).
3.2 Integration Moves by Amazon
Amazon moved with speed to integrate and reimagine
Whole Foods after taking over. On the first day
Amazon owned Whole Foods (August 28, 2017),
Whole Foods surprised shoppers by lowering prices
on numerous stock items. Prices on higher-end Whole
Foods brands dropped as much as 40%; for example,
a basket of goods decreased from approximately $98
Amazon’s Acquisition of Whole Foods: A Case Analysis
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to $76 post-acquisition (Sainato, 2018). That
immediate price cut was intended to shake off Whole
Foods’ “Whole Paycheck” label and draw in shoppers.
It worked initially – Whole Foods traffic accelerated
by 25% in the first two days Amazon owned it
(Misamore, 2017). In addition to prices cutting,
Amazon moved with speed to integrate Whole Foods
into the Prime fold. In a matter of months, Whole
Foods shoppers enjoyed additional perks as Amazon
Prime shoppers, such as greater discounts and cash
rebates for shopping with the Prime Visa card in
stores. These actions prompted Amazon’s tens of
millions of Prime shoppers to shop at Whole Foods,
merging the two companies’ loyalty systems.
Amazon also leveraged Whole Foods stores to grow
its own in-house businesses by rolling out Prime Now
and device displays (Chen, 2018). Amazon installed
pickup lockers and improved inventory systems but
preserved Whole Foods' brand name and employees
(Blanding, 2018).
3.3 Strategic Impacts
The Amazon-Whole Foods takeover delivered a mix
of successful and challenging results in subsequent
years. On the plus side, Amazon gained from an
immediate physical store base that supported
omnichannel strength. The take-over shook up the
grocery sector – players like Walmart and Kroger
accelerated digital grocery efforts in response to
Amazon’s move into physical grocery (Misamore,
2017). Whole Foods had the consumer traffic and
funding from Amazon: post-acquisition, Whole
Foods enjoyed higher revenue from flooded-in Prime
shoppers and online shopping, driving Amazon’s
overall grocery expansion (Whole Foods Market,
2017). A strong early stock market reaction delivered
a further encouraging indicator: as reported,
Amazon’s share value lifted on news (adding billions
to the value), suggesting investor support (Abrams &
Creswell, 2017). Whole Foods’ reduced prices and
Amazon-assisted advertising attracted new shoppers
– early traffic increases of 25%-plus in the stores, if
maintained in part, paid off in extra market share
(Sainato, 2018). Nonetheless, merging data and
knowledge started to pay dividends: Amazon is
mentioned to have leveraged Whole Foods’ shopping
behaviour in order to bespoke offers and make food
retail analytics better (Misamore, 2017). The take-
over proved out a strategy that retail strategists call
“omnichannel” retail – combining internet and offline
capabilities. By 2018, Amazon was piloting formats
like Amazon Go unmanned stores and expanding out
into wider grocery delivery, driven by insights
through Whole Foods (Chen, 2018).
3.4 Risk Exposure
On the flip side, not all was hunky dory. Whole Foods
had integration headaches and did not at once reverse
fortune. In early 2018 (mere months post-acquisition),
Whole Foods in fact reduced sales estimates, and
announced a chain of store closures due to issues like
inventory problems that emerged post-merger
(Sainato, 2018). These glitches illustrated that
marrying Amazon's efficiency-oriented systems to
Whole Foods was not easy. Some Whole Foods
customers and suppliers suffered – there were reports
on stricter inventory and merchandising practices (as
Amazon overlaid its data-oriented paradigm), which
resulted in sporadic stock shortages and less-
customer-informed in-store experience, leading to
criticism from long-time Whole Foods consumers
(Sainato, 2018). In wider financial sense, Amazon’s
synergy gamble was still to be repaid: the substantial
goodwill on Amazon’s books (equating to some $9
billion from the deal) meant Amazon required
substantial performance gains from Whole Foods to
make the outlay worthwhile (Misamore, 2017). By
year’s end in 2019 and thereafter, Whole Foods was
still relatively low-performing in Amazon’s kingdom,
and the upscale niche was such that Amazon could
not make dramatic format changes without harming
the brand. Some warned that Amazon and Whole
Foods would not enjoy “clear overlap” in capabilities
– Amazon is a strength in low-cost, efficient delivery,
whereas Whole Foods founded success on premium
commodities and in-store experience (Blanding,
2018). This imbalance created the risk that expected
synergies (most notably on the cost side) would be
harder to realize than anticipated. In fact, academic
research on M&A suggests that when two companies
possess highly divergent cultures or competitive
approaches, integration dilutes what was supposed to
make the target successful (or the buyer delivers less
value-add than anticipated) (Gelfand et al., 2018).
Hence, one consequence of the Amazon–Whole
Foods saga was a wiser realization that synergy was
not going to happen on autopilot. Amazon had
incremental gains – added grocery market saturation
and valuable customer data – but total transformative
“disruption” of North American grocery retaling has
had a longer, less sudden unfolding than initially
expected. To this writer, as of some post-merger years,
Whole Foods remained functioning in some measure
independently as a freestanding Amazon-owned
chain, servicing its organic niche, with Amazon
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continuing to make adjustments in its grocery
experiments, including in other store formats.
Economic results, in summary, were multifaceted:
Amazon gained strategic assets and lengthened
grocery revenues, but faced the harsh reality that
groceries is a low-margin, tough business. The
transaction, in effect, placed Amazon in direct
competition with entrenched supermarket chain
competitors, constricting margins for every player.
Consumers benefited from less expensive Whole
Foods prices and increased delivery opportunities, but
Amazon engaged in a long game in converting the
gains to long-term profits (Chen, 2018).
4 CONCLUSION
There are several lessons from M&A strategy and
payoff to be gleaned from the Amazon–Whole Foods
merger. First and foremost, it demonstrates how
strategic fit and synergy can become a driving force
for mergers. Amazon was motivated by a vision for
synergistic value—cross-pollination of its technology
and scope with Whole Foods' brand and sites—
together rather than apart. That is an expression of the
belief that synergy-generated value needs to come
first. But, as this case illustrated, it is a complicated
process and not to be taken for granted. Second, the
case serves as a reminder of post-merger integration
dangers, once again when two firms have disparate
cultures or business models. Even when an
acquisition seems an obvious strategic fit, success and
failure can depend on execution of merger and
integration—aligning systems and adapting culture.
Numerous M&A deals fail due to a failure of the
merged business to achieve anticipated cost savings
or growth goals and due to synergy taking longer to
develop than planned. Amazon's experience—initial
misadventures with inventory and getting Whole
Foods' brand aligned with systems—also serves to
demonstrate how real integration risk can occur.
Third, the merger illustrates how diversification into
a new industry, like tech moving into food retail, can
be a two-edged sword. It provides opportunity for
expansion, yet it asks questions regarding how much
can really be added by way of value. For Amazon,
food retailing was close enough to its base business
so that some cross-pollination of capabilities was
possible, although others had to be established or
purchased. Finally, the result is a master class in
managing expectations. Initial reaction to the
acquisition in the market was optimistic, but
everything works out differently in reality. Whole
Foods' acquisition by Amazon shocked the grocery
market and unleashed strategic capabilities, but it was
no overnight hit. The payoff—increased customer
access and omnichannel muscle—was accompanied
by a requirement for patience and long-term
investment. In sum, Amazon's Whole Foods
experiment demonstrates how M&A can be an
effective agent of strategic change, allowing firms to
access enhanced size, synergy, and diversification.
But success is contingent on careful planning,
productive integration, and a shared vision for how
the merged business can create value. This case
reaffirms basic M&A principles: synergy needs to be
delivered from disciplined execution, and even said
acquisitions present dangers to be navigated
cautiously. Taking heed from such lessons can inform
leaders to make wiser decisions and enhance
prospects for long-term success for future mergers.
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